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Hi Sir,
I don’t understand how they calculated the following number
Worst case: year 3: 20.07
Best case: year 3: 25.75Please help me.
Thank you!The cash flow in year 3 is 4,040 million rubbits.
As per the instructions in the question, 2,000 is converted at the current spot rate of 85.40 rubbits per pound, and the remaining 2,040 is converted at the spot rate in 3 years time.
So for the worst case (where the year 3 spot rate is 288.23) it converts to:
2,000/85.40 + 2,040/288.23 = 30.49688.
Discounting this for 3 years at 15% gives 30.49688 x 0.658 = 20.07.It is the same workings for the best case, except that the 2,040 is covered at a year 3 spot rate of 129.88.
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