Question: 1.Assume a US-based multinational borrows CHF 1,500,000 for 1 year. The borrowing interest rate is i = 5% (EAR). The current spot rate S0(CHF/USD) is

1.Assume a US-based multinational borrows CHF 1,500,000 for 1 year. The borrowing interest rate is i = 5% (EAR). The current spot rate S0(CHF/USD) is 1.5. If the CHF appreciates against the USD during the year, and the future spot rate one year from now is estimated at S1(CHF/USD) = 1.44, what is the dollar (effective) cost of debt during the year?

2. What if the CHF 1,500,000 loan is to be repaid in 2 years, with interest paid annually and principal paid at the end of 2 years. Assume the same information as before; the future spot rate two years from now is estimated atS2(CHF/USD) = 1.46. What is the dollar (effective) cost of debt on this loan?

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