Gulliver Travel Agencies thinks interest rates in Europe are low. The firm borro
ID: 2752088 • Letter: G
Question
Gulliver Travel Agencies thinks interest rates in Europe are low. The firm borrows euros at 9 percent for one year. During this time period the dollar falls 14 percent against the euro. What is the effective interest rate on the loan for one year? (Consider the 14 percent fall in the value of the dollar as well as the interest payment.) (Compute your answer from a U.S. perspective. Input your answer as a whole percent.)
Gulliver Travel Agencies thinks interest rates in Europe are low. The firm borrows euros at 9 percent for one year. During this time period the dollar falls 14 percent against the euro. What is the effective interest rate on the loan for one year? (Consider the 14 percent fall in the value of the dollar as well as the interest payment.) (Compute your answer from a U.S. perspective. Input your answer as a whole percent.)
Explanation / Answer
Effective interest rate = Interest rate on investment + Declined %in dollar value
Effective interest rate = 9% + 14%
Effective interest rate = 23%
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