Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a Bri

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Suppose you are a British venture capitalist holding a major
stake in an e-commerce start-up in Silicon Valley. As a British
resident, you are concerned with the pound value of your U.S.
equity position. Assume that if the American economy booms in the
future, your equity stake will be worth $1,002,680, and the
exchange rate will be $1.4/£. If the American economy experiences a
recession, on the other hand, your American equity stake will be
worth $503,040, and the exchange rate will be $1.6/£. You assess
that the American economy will experience a boom with a 60 percent
probability and a recession with a 40 percent probability.
a. Estimate your exposure to the exchange risk. (Round final
answer to nearest dollar.)
b. Compute the variance of the pound value of your American
equity position that is attributable to the exchange rate
uncertainty. (Round final answer to nearest dollar.)