How much money should alid atlantic set aside

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Reference no: EM131374636

In 10 years, Mid-Atlantic Corp. will be investing $200,000 either in Columbo or in Avalon. The exchange rate between the Columboan dollar and the Avalonian pound is fixed at S2 = £1. Dollars and pounds can be exchanged at no cost at any time.

If the $200,000 is invested in Columbo, each dollar invested will return SO.30 per year for each of the following five years. If the $200,000 is converted to pounds and invested in Avalon, each pound invested will return £0.24 per year for the following seven years.

Columbo is subject to ongoing average inflation of 4%, while inflation in Avalon averages 2%.

If the real ALARR for Alid-Atlantic is 10%, which investment is preferred? How much money should Alid-Atlantic set aside now (invested at the ALARR) to ensure that it has enough money to make the investment in 10 years?

Reference no: EM131374636

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