Mississippi Company borrows ¥80,000,000 at a time when the exchange rate is 110 ¥/$. Principal is to be repaid two years from now, and interest is for the yen bond is 4% per annum, paid annually in yen. Suppose the yen is expected to depreciate relative to the dollar to 120 ¥/$ in one year, and 125¥/$ in two years. Under these circumstances, what would be the effective dollar cost of this loan for Mississippi Company? Please enter your answer as %
Mississippi Company borrows ¥80,000,000 at a time when the exchange rate is 110 ¥/$. Principal is to be repaid two years from now, and interest is for the yen bond is 4% per annum, paid annually in yen. Suppose the yen is expected to depreciate relative to the dollar to 120 ¥/$ in one year, and 125¥/$ in two years. Under these circumstances, what would be the effective dollar cost of this loan for Mississippi Company? Please enter your answer as %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Mississippi Company borrows ¥80,000,000 at a time when the exchange rate is 110 ¥/$. Principal is to be repaid two years from now, and interest is for the yen bond is 4% per annum, paid annually in yen. Suppose the yen is expected to
depreciate relative to the dollar to 120 ¥/$ in one year, and 125¥/$ in two years. Under these circumstances, what would be the effective dollar cost of this loan for Mississippi Company? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.
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