Mississippi Company borrows 80,000,000 at a time when the exchange rate is 110 /$. Principal...
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Mississippi Company borrows 80,000,000 at a time when the exchange rate is 110 /$. 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?
correct answer is -2.483, but how?
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