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yawa3891 [41]
3 years ago
10

You are borrowing USD 1000 for one year, at a coupon rate of 8.2%. You will get the money today, and will repay all principal an

d interest one year from today. If the current CAD per USD spot rate is 0.93, the CAD inflation rate is 2.5%, and the USD inflation rate is 3.3%, what is the CAD cost of debt for this loan?
Business
1 answer:
myrzilka [38]3 years ago
4 0

Answer: $1131.7 CAD

Explanation:

Current spot rate 1 CAD( Canadian dollar) = 0.98 USD( USA dollar)

CAD inflation rate = 2.5%

USD inflation rate = 3.3% Number of years (n)= 1

P = $1000 USD

R = 8.2%

converting the $1000 USD to CAD

= $1000/0.98 = $1020.41 CAD.

I = p × r × t / 100

I = 1020.41 × 8.2 × 1 / 100

I = $83.674 CAD

Repayment = $1104.084

Cost of loan in CAD if inflation rate is 2.5℅

= $1104.084 × 0.025

= $27.6021

Total debt on Loan

= $1131.7 CAD

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