Question

Maltese​ Falcon: The Black Bird. Imagine that the mythical solid gold​ falcon, initially intended as a tribute by the Knights of Malta to the King of Spain in appreciation for his gift of the island of Malta to the order in​ 1530, has recently been recovered. The falcon is 14 inches high and solid​ gold, weighing approximately 48 pounds. Assume that gold prices have risen to ​$435​/ounce, primarily as a result of increasing political tensions. The falcon is currently held by a private investor in​ Istanbul, who is actively negotiating with the Maltese government on its purchase and prospective return to its island home. The sale and payment are to take place one year from​ now, and the parties are negotiating over the price and currency of payment. The investor has​ decided, in a show of​ goodwill, to base the sales price only on the​ falcon's specie valuelong dashits gold value. The current spot exchange rate is 0.3896 Maltese lira​ (ML) per 1.00 U.S. dollar. Maltese inflation is expected to be about 8.501​% for the coming​ year, while U.S.​ inflation, on the heels of a​ double-dip recession, is expected to come in at only 1.505 %. If the investor bases value in the U.S.​ dollar, would he be better off receiving Maltese lira in one year​ (assuming purchasing power​ parity), or receiving a guaranteed dollar payment​ (assuming a gold price of ​$423 per ounce one year from​ now)?

If the investor bases his gross sales proceeds in U.S.​ dollars, the guaranteed dollar payment yields ​$ ______. ​ (Round to the nearest​ cent.)

Answer 1