First National Bank of Memphis issued $100 million of one-year CDs is the United
ID: 2721708 • Letter: F
Question
First National Bank of Memphis issued $100 million of one-year CDs is the United States ($) at a rate of 2.50 percent. It invested $50 million in one-year loans to U.S. corporations at an annual rate of 4.5 percent. The remaining $50 million was loaned, with one year maturity, to corporations in Chile yielding 6 percent. All proceeds of loans, both U.S. and Chile will be received at the end of the year. The exchange rate at the time the Chilean loans were made was $0.001596/Chilean Peso (CLP) or CLP 626,413/$. What was the total value denominated in Chilean Pesos for the $50 million invested in the corporation in Chile at the beginning of the year? Chilean Loan in CLP = At the end of the year, w hat will be the net return (interest income minus interest expense) on the total $100 million investment in loans ($50 million in the US and $50 million in Chile) if the exchange rate between the Chilean Peso and the U.S. dollar is 605.925 CLP/$ or 0.001650$/CLP at the end of the year? What is the percent return on the $100 million investment?Explanation / Answer
Part A)
Amount invested in corporation in chile = dollar invested x exchange rate
= 50,000,000 x 626.413
= 31320650000
Part B)
Cost of funds 100,000,000 x 2.50% = 2,500,000
Return on US loan = 2,250,000
Return on Chilean loan 31320650000 x 6% /605.925 =3101438.30
Total interest earned = 5351438.30
Net Interest earned = 5351438.30 -2,500,000
=2851438.30
Net return on investment = 2851438.30/ 100,000,000
= 2.85%
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