Chapter 3: Q4BP_b (page 221)

Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 240,000 reals in Brazil worth 170,000 dollars. It drew 12 percent interest, but the Brazilian real declined 24 percent against the dollar.
b. What is the value of its holdings, based on U.S. dollars, at year-end if instead it drew 9 percent interest and the real went up by 13 percent against the dollar?

Short Answer

Expert verified

The year-end value of the holding will be $209,411.

Step by step solution

Information provided in question

Value of 240,000 reals in 2010 = $170,000

Interest drawn by the funds = 9%

Percentage increase in value of real against dollars = 13%

Calculation of the value of the holdings

The value of the holdings at year-end will be $209,411.

$\begin{array}{rcl} S p o t R a t e & = & \frac{D o l l a r s}{R e a l s} \\ = & \frac{170, 000}{240, 000} \\ = & 0.7084 \end{array}$

$\begin{array}{rcl} Y e a r - e n d r a t e & = & S p o t r a t e \times (1 + I n c r e a s e i n v a l u e o f r e a l) \\ = & 0.7084 \times (1 + 0.13) \\ = & 0.8005 \end{array}$

$\begin{array}{rcl} D e p o s i t i n r e a l a f t e r 1 y e a r & = & I n i t i a l d e p o s i t \times (1 + I n t e r e s t r a t e) \\ = & 240, 000 \times (1 + 0.09) \\ = & 261, 600 r e a l \end{array}$

$\begin{array}{rcl} Y e a r - e n d v a l u e o f h o l d i n g & = & V a l u e o f d e p o s i t a t y e a r - e n d \times Y e a r - e n d r a t e \\ = & 261, 600 \times 0.8005 \\ = & $ 209, 411 \end{array}$

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January	\(100,000
February	\)93,000
March	\(25,000
April	\)25,000
May	\(20,000
June	\)35,000
July	\(45,000
August	\)45,000
September	\(55,000
October	\)85,000
November	\(105,000
December	\)123,000
Total annual sales	\(756,000

January	\(100,000
February	\)93,000
March	\(25,000
April	\)25,000
May	\(20,000
June	\)35,000
July	\(45,000
August	\)45,000
September	\(55,000
October	\)85,000
November	\(105,000
December	\)123,000
Total annual sales	\(756,000

Short Answer

Step by step solution

Information provided in question

Calculation of the value of the holdings

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