Japanese investors purchased from Walt Disney Productions projected yen royaltie

Question

Japanese investors purchased from Walt Disney Productions projected yen royalties. The 20-year stream of royalties is for Tokyo Disneyland. The present value of that stream of royalties, discounted at 5 percent (the return required by the Japanese investors), was ¥95 billion. Disney took the yen proceeds from the sale, converted them to dollars, and invested the dollars in bonds yielding 8 percent. At the time of the sale, the exchange rate was ¥79.8408 = $1.

a. What amount (in dollars) did Disney realize from the sale of its yen proceeds?

b. Describe the similarities and differences between Walt Disney's transaction and a currency/interest rate swap.

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Explanation / Answer

Ans:1 The amount realise by Disney from sale of its yen Proceed Given 1$= Yen 79.8408 so, 1Yen= $1/79.8408 95 Billion Yen= 95Billion*1/79.7408 or, 95000000000/79.7408 $1189867836.9956

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