Please create an excel file showing the formulas for each cell which consitutes part of the solution.
Note that you have to show the formulas where there is a computation involved. You cannot merely copy the numbers on the pdf file.

A Canadian firm holds an asset in France and faces the following scenario: State 1 State 2 State 3 Probability 20% 50% 30% Spot rate $1.6/euro $1.65/euro $1.70/euro Price of the euro- asset euro 2,000 euro 3,000 euro 4,000 A) WHAT IS THE EXPECTED VALUE, E(P), OF THE INVESTMENT IN CAD? (HINT: GET THE PRO-RATED VALUE) B) WHAT IS THE VARIANCE, VAR(S), OF THE EXCHANGE RATE? (HINT: GOOGLE FORMULA FOR VARIANCE. YOUR MEAN WOULD BE THE PRORATED VALUE OF THE SPOT RATE (E(S). C) WHAT IS THE EXPOSURE (i.e. REGRESSION COEFFICIENT "BETA"? (Hint: You will need to calculate COV(P/S). Recall Beta= COV(P/S) / VAR(S) Have fun! CHAPTER 12 EXERCISE SOLUTION PROBABLITY SPOT RATE S/EURO PRICE OF EURO ASSET IN EURO STATE 1 0.2 1.6 2000 STATE 2 0.5 1.65 3000 STATE 3 0.3 1.7 4000 PRICE OF ASSET IN CAD PRORATE E(P) = CAD 5155 3200 640 4950 2475 6800 2040 0.32 0.825 0.51 VARIANCE OF EXCHANGE RATE E(S) = CAD 1.655 PER EURO VAR(S) FORMULA 2(1.6-1.6550)^2 + 5(1.65-1.655)^2)+ 3(1.7-1.655)^2 0.000605 0.0000125 0.0006075 VAR(S) = .001225 WHAT IS THE "EXPOSURE" REGRESSION COEFFICIENT, Beta COV (P.S) FORMULA 2(3200-5155)(1.6-1.655) + 5(4950-5155)1.65-1.655) + 3 (6800-5155)1.7 COV (P.S) 21.505 0.5125 22.2075 COVIP/S) /VAR (S) = 44.225/.001225 A: VARIANCE B: SPOT RATE S/EURO 1.655 1.6 1.655 1.65 1.655 1.7 A-B-C BETA c PRICE OF ASSET IN CAD PRORATED VALUE FOR HEDGING 0.055 36102.04 1985.61 3200.00 5185.61 0.005 36102.04 180.51 4950.00 5130.51 -0.045 36102.04 - 1624.59 6800.00 5175.41 5155 1.655 0.001225 -1.655) 44.225 36,102.04