Clay Graham has homes in both Wilmington, USA and Bremen, Germany. He travels between the two cities
Question:
Clay Graham has homes in both Wilmington, USA and Bremen, Germany. He travels between the two cities at least four times a year. Because of his frequent trips he wants to buy some new, high quality cellphone which works with two SIM Cards from both countries. He's done his research and has decided to go with the newest Apple I-Phone. There are retail stores in both Wilmington and Bremen. Clay is a finance professor and wants to use purchasing power parity, which he just taught his IMBA Students in this year's class, to determine if he is paying the same price no matter where he makes his purchase.
1. If the price of the Cellphone in Wilmington is $850 and the price of the same Cellphone in Bremen is 930, using purchasing power parity (PPP), is the price of the Cellphone truly equal if the spot rate is 1.0941/$?
The Sportrate is:
Please enter your solution as: "X.XXXX"
2. If the price of the Cellphone remains the same in Wilmington one year from now, determine what the price of the Cellphone should be in Bremen in one year's time if PPP holds true. The US inflation rate is 1.15% and the German inflation rate is 3.13%.
The PPP exchange rate is:
Please enter your solution as: "X.XXXX"
The price of the Cellphone in Bremen is:
Please enter your solution as: "XXX.XX"