A U.S. firm holds an asset in Great Britain and faces the following scenario: State 1 State
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Question:
A U.S. firm holds an asset in Great Britain and faces the following scenario:
State 1 | State 2 | State 3 | ||||||||||||
Probability | 25% | 50% | 25% | |||||||||||
Spot rate | $ | 2.20 | /£ | $ | 2.00 | /£ | $ | 1.80 | /£ | |||||
P* | £ | 2,000 | £ | 2,500 | £ | 3,000 | ||||||||
P | $ | 4,400 | $ | 5,000 | $ | 5,400 | ||||||||
where,
P* = Pound sterling price of the asset held by the U.S. firm
P = Dollar price of the same asset
The expected value of the investment in U.S. dollars is
A) $3,700.
B) $2,112.50.
C) $4,950.
D) none of the options
Related Book For
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
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