The expected spot rate in three years is $.0992.
The expected spot rate in three years is calculated using the Purchasing Power Parity (PPP) formula. This formula is expressed as:
Expected Spot Rate = Current Spot Rate x (1 + Inflation Rate of Home Country / 1 + Inflation Rate of Foreign Country)3
Therefore, for the given situation, the expected spot rate in three years is calculated as follows:
Expected Spot Rate = $.1050 x (1 + 4% / 1 + 7%)3
Expected Spot Rate = $.1050 x 0.964
Expected Spot Rate = $.0992
Hence, the correct answer is D. $.0992
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