Lamoreaux's Homes: Sydney to Phoenix.Terry Lamoreaux has homes in both Sydney, Australia, and Phoenix, the United States. He travels between the two cities at least twice a year. Because of his frequent trips, he wants to buy some new, high quality luggage. He has done his research and has decided to go with a Briggs and Riley three-piece luggage set. There are retails stores in Phoenix and Sydney. Terry 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 Phoenix is

$853

and the price of the same three-piece set in Sydney is

A$932,

using purchasing power parity, is the price of the luggage truly equal if the spot rate is

A$1.0926/$?

b. If the price of the luggage remains the same in Phoenix one year from now, determine the price of the luggage in Sydney in one-year's time if PPP holds true. The U.S. inflation rate is

1.14%

and the Australian inflation rate is

3.16%.