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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Age of receivables April 30 20X1
1	2	3	4
Month of sales	Age of accounts	Amounts	Percent of amount due
April	0-30	\(131,250	____
March	31-60	\)93,750	____
February	61-90	\(112,500	____
January	91-120	\)37,500	____
Total receivables		$375,000	100%

March	3,250
April	7,250
May	11,500
June	9,500
Total units	31,500

Short Answer

Step by step solution

Information provided in question

Calculation of the value of the holdings

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