2)

Nikken Microsystems (B). Assume Nikken Microsystems has sold Internet servers to Telecom Espaa for 692,000. Payment is due in 4 months and will be made with a trade acceptance from Telecom Espaa Acceptance. The acceptance fee is 1.4% per annum of the face amount of the note. This acceptance will be sold at a 4.2% per annum discount. Also assume that Nikken

Microsystems prefers to receive U.S. dollars rather than euros for the trade transaction. It is considering two alternatives: 1) sell the acceptance for euros at once and convert the euros immediately to U.S. dollars at the spot rate of exchange of $1.02 / or 2) hold the euro acceptance until maturity but at the start sell the expected euro proceeds forward for dollars at the 4-month forward rate of $1.05/.

A a. What are the U.S. dollar net proceeds received at once from the discounted trade acceptance in alternative 1?

The trade acceptance fee is ______

Spot Proceeds:

Face amount of the receivable:

Less trade acceptancetee:

Euro proceeds:

Spot exchange rate. $/:

us. dolar oroceeds. now:

B. What are the U.S. dollar net proceeds received in 4 months in alternative 2?

Calculate the U.S. dollar proceeds received in 4 months:

Spot Proceeds:

Face amount of the receivable:

Less trade acceptancetee:

Euro proceeds:

Spot exchange rate. $/:

us. dolar oroceeds. now:

C. What is the break-even investment rate that would equalize the net U.S. dollar proceeds from both alternatives?

The break-even investment rate is ____%