Chan’s Homes: Hong Kong to Toronto. Albert Chan owns homes in Toronto, Canada and Hong Kong, China. He travels between the two cities at least four times a year. Because of his frequent trips, he wants to buy some high-quality luggage. He has done some research and has decided to purchase a Samsonite three-piece luggage set. There are retail stores in Toronto and Hong Kong that carry the luggage set he intends to purchase. Albert was a finance major and wants to use purchasing power parity to determine if he is paying the same price regardless of where he makes his purchase.

a. If the price of the three-piece luggage set in Toronto is C$950 and the price of the same threepiece set is HK$5,650, using purchasing power parity, is the price of the luggage truly equal if the spot rate is HK$6.0000/C$?

b. If the price of the luggage remains the same in Toronto one year from now, determine the price of the luggage in Hong Kong in one year’s time if PPP holds true. The Canadian inflation rate is 2.0% and the Hong Kong inflation rate is 3.5%.