(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days.  Given the following exchange rates and interest rates,  the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge.     Assumptions   Value 90-day A/R in pounds   £2,000,000.00 Spot rate, US$ per pound ($/£)   $1.5610 90-day forward rate, US$ per pound ($/£)   $1.544 3-month U.S. dollar investment rate   14.000% 3-month U.S. dollar borrowing rate   12.000% 3-month UK investment interest rate   7.500% 3-month UK borrowing interest rate   10.000% Put options on the British pound: Strike rates, US$/pound ($/£)          Strike rate ($/£)   $1.55           Put option premium   1.2%      Strike rate ($/£)   $1.54           Put option premium   1.1%      Strike rate ($/£)   $1.55          Call option premium   2.1% Trident's WACC    14.000% Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£)   $1.5431 The correct answer is 5.53 can you please explain the steps

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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(Transaction Exposure)Trident — A U.S.-based company, has concluded a sale of telecommunications equipment to Regency (U.K.). A total payment of £2,000,000 is due in 90 days.  Given the following exchange rates and interest rates,  the break-even investment rate (for money market hedge) is _________% when comparing the forward hedge and the money market hedge.

 

 

Assumptions   Value
90-day A/R in pounds   £2,000,000.00
Spot rate, US$ per pound ($/£)   $1.5610
90-day forward rate, US$ per pound ($/£)   $1.544
3-month U.S. dollar investment rate   14.000%
3-month U.S. dollar borrowing rate   12.000%
3-month UK investment interest rate   7.500%
3-month UK borrowing interest rate   10.000%
Put options on the British pound: Strike rates, US$/pound ($/£)    
     Strike rate ($/£)   $1.55
          Put option premium   1.2%
     Strike rate ($/£)   $1.54
          Put option premium   1.1%
     Strike rate ($/£)   $1.55
         Call option premium   2.1%
Trident's WACC    14.000%
Maria Gonzalez's expected spot rate in 90 days, US$ per pound ($/£)   $1.5431

The correct answer is 5.53 can you please explain the steps

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