Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project...

 

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Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 6.5% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 20.00 pesos per dollar, but it dropped to 19-55 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 19.55 pesos per dollar through the end of the loan period, what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places. Blenman Corporation, based in the United States, arranged a 2-year, $1,000,000 loan to fund a project in Mexico. The loan is denominated in Mexican pesos, carries a 6.5% nominal rate, and requires equal semiannual payments. The exchange rate at the time of the loan was 20.00 pesos per dollar, but it dropped to 19-55 pesos per dollar before the first payment came due. The loan was not hedged in the foreign exchange market. Thus, Blenman must convert U.S. funds to Mexican pesos to make its payments. If the exchange rate remains at 19.55 pesos per dollar through the end of the loan period, what effective annual interest rate will Blenman end up paying on the loan? Do not round the intermediate calculations and round the final answer to two decimal places.

Answer rating: 100% (QA)

To determine the effective annual interest rate on the loan we first need to calculate the semiannua... View the full answer