Assume Willy Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000
ID: 2766275 • Letter: A
Question
Assume Willy Corporation, a U.S.-based MNC, obtains a one-year loan of 1,500,000 Malaysian ringgit (MYR) at a nominal interest rate of 7%. At the time the loan is extended, the spot rate of the ringgit is $.25. If the spot rate of the ringgit in one year is $.28, the dollar amount initially obtained from the loan is $____, and $____ are needed to repay the loan. SHOW ALL WORK.
a.
375,000; 449,400
b.
449,400; 375,000
c.
6,000,000; 5,357,143
d.
5,357,143; 6,000,000
a.
375,000; 449,400
b.
449,400; 375,000
c.
6,000,000; 5,357,143
d.
5,357,143; 6,000,000
Explanation / Answer
A. 375000 , 449400
Reason ;
Spot rate =
1ringit = $.25
1500000ringit = $ 1500000 × .25 = $375000 initially obtained amount in $.
2. AMOUNT needed to repay after 1 year
1 year spot rate = $.28
1500000 × .28 = $420000
Add interest @7% = $29400 ,
Total = $ 449400
Note, here interest is at nominal rate, so no need to give any effect of inflation.
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