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lys-0071 [83]
3 years ago
15

In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro-U.S. dollar spot exchange rate was €.625/$

1.00. Aldi trades as an ADR in the OTC market in the United States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is:_______. A) €25.00. B) $15.63. C) $40.00. D) none of the options
Business
1 answer:
Molodets [167]3 years ago
7 0

Answer:

B) $15.63

Explanation:

Calculation for the no-arbitrage U.S. price of one ADR

First step is to calculate the Equivalent amount of one ADR in euro

Equivalent amount of one ADR in euro = 5 ×€5

Equivalent amount of one ADR in euro = €25

Now let calculate the Dollar value of one ADR

Dollar value of one ADR = €25* €625/1,000

Dollar value of one ADR=€15,625/1,000

Dollar value of one ADR=$15.63

Therefore the no-arbitrage U.S. price of one ADR is:$15.63

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Under absorption costing the fixed overheads are included in the product costs.  We calculate the total manufacturing costs having fixed overheads and variable overheads and divide it with the number of units to get the product cost per unit.

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