The euro is expected to depreciate vis--vis the dollar at, Financial Management

The euro is expected to depreciate vis--vis the dollar at

McDougan Associates, a U.S.-based investment partnership, borrows euro 90,000, 000 at a time when the exchange rate is $1.3341/euro. The entire principal is to be repaid in three? years, and interest is 6.650% per annum, paid annually in euros. The euro is expected to depreciate vis-à-vis the dollar at 3.2% per annum. What is the effective cost of this loan for McDougan?

Interest Payment due in euros

Year 0 90,000,000

Year 1

Year 2

Year 3

Total Cash flow of euro-dominated debt

Year 0

Year 1

Year 2

Year 3

Expected exchange rate $/euro

Year 0-1.3341

Year 1

Year 2

Year3

Dollar equivalent of euro-denominated cash flow

Year 0 $

Year 1$

Year 2$

Year3 $

What is the effective cost of this loan for McDougan?

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Financial Management: The euro is expected to depreciate vis--vis the dollar at

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Financial Management: The euro is expected to depreciate vis--vis the dollar at

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