A U.S.-based company, American Construction, Inc., arranged a 2-year, $1,000,000 loan to fund a project in...

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A U.S.-based company, American Construction, Inc., arranged a2-year, $1,000,000 loan to fund a project in Mexico. The loan isdenominated in Mexican pesos, carries a 10.0% nominal rate, andrequires equal semiannual payments. The exchange rate at the timeof the loan was 5.75 pesos per dollar, but it dropped to 5.15 pesosper dollar before the first payment came due. The loan was nothedged in the foreign exchange market. Thus, Stewart must convertU.S. funds to Mexican pesos to make its payments. If the exchangerate remains at 5.15 pesos per dollar through the end of the loanperiod, what nominal interest rate will Stewart end up paying onthe loan?

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ForeignExchange and Interest RateExchange Rate at the time of Loan 575 MexicanPesosDollarExchange Rate at the time of loan repayment period 515Mexican PesosDollarAppreciation in See Answer

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A U.S.-based company, American Construction, Inc., arranged a2-year, $1,000,000 loan to fund a project in Mexico. The loan isdenominated in Mexican pesos, carries a 10.0% nominal rate, andrequires equal semiannual payments. The exchange rate at the timeof the loan was 5.75 pesos per dollar, but it dropped to 5.15 pesosper dollar before the first payment came due. The loan was nothedged in the foreign exchange market. Thus, Stewart must convertU.S. funds to Mexican pesos to make its payments. If the exchangerate remains at 5.15 pesos per dollar through the end of the loanperiod, what nominal interest rate will Stewart end up paying onthe loan?