Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U.S. resident, we are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth £4,600 and one British pound will be worth $1.54. If the British economy slows down, on the other hand, the land will be worth more, i.e., £5,700, but the pound will be weaker, i.e., $1.32/£. You feel that the British economy will experience a boom with a 55% probability and a slow-down with a 45% probability. Given the above facts, please estimate your exposure b to the exchange risk. £47,916.00 £2,000.00 O £7,282.00 £5,235.00 Same facts as above: compute the variance of the dollar value of your property that is attributable to the exchange rate uncertainty (that is, please compute the value of B2Var(S). $7,282.00 $2,000.00 $14,441.00 $47,916.00

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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JC..
Suppose that you hold a piece of land in the City of London that you may want to sell in one year.
As a U.S. resident, we are concerned with the dollar value of the land. Assume that, if the British
economy booms in the future, the land will be worth £4,600 and one British pound will be worth
$1.54. If the British economy slows down, on the other hand, the land will be worth more, i.e.,
£5,700, but the pound will be weaker, i.e., $1.32/£. You feel that the British economy will
experience a boom with a 55% probability and a slow-down with a 45% probability. Given the
above facts, please estimate your exposure b to the exchange risk.
£47,916.00
£2,000.00
£7,282.00
£5,235.00
Same facts as above: compute the variance of the dollar value of your property that is
attributable to the exchange rate uncertainty (that is, please compute the value of B2Var(S).
$7,282.00
$2,000.00
$14,441.00
$47,916.00
Transcribed Image Text:JC.. Suppose that you hold a piece of land in the City of London that you may want to sell in one year. As a U.S. resident, we are concerned with the dollar value of the land. Assume that, if the British economy booms in the future, the land will be worth £4,600 and one British pound will be worth $1.54. If the British economy slows down, on the other hand, the land will be worth more, i.e., £5,700, but the pound will be weaker, i.e., $1.32/£. You feel that the British economy will experience a boom with a 55% probability and a slow-down with a 45% probability. Given the above facts, please estimate your exposure b to the exchange risk. £47,916.00 £2,000.00 £7,282.00 £5,235.00 Same facts as above: compute the variance of the dollar value of your property that is attributable to the exchange rate uncertainty (that is, please compute the value of B2Var(S). $7,282.00 $2,000.00 $14,441.00 $47,916.00
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