The implied ppp exchange rate is mexican peso

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Reference no: EM131854278

1. According to the Big Mac Index, the implied PPP exchange rate is Mexican peso 8.50/$1 but the actual exchange rate is peso 10.80/$1. Thus, at current exchange rates the peso appears to be ________ by ________.

A) overvalued; approximately 21%

B) overvalued; approximately 27%

C) undervalued; approximately 21%

D) undervalued; approximately 27%

E) None of the Above

2. Suppose DeepMind Inc. will pay $1.50 per share in dividends next year. The require return on the stock is 10% and its dividends will grow by 2% per year indefinitely. Under which of the following scenarios would you be willing to pay more than $18.75 today?

A) All else being equal, the required return is more than 10%

B) All else being equal, the dividend next year will be $1.20.

C) All else being equal, the growth rate of the dividends is greater than 2%.

D) You would be willing under both (A) and (C).

Reference no: EM131854278

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