Porter makes three year loans which include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plusthe rate of inflation.The US government borrows 100,000 for three years from Porter. The actual annual inflation rate during the first year was 2.4% compoundedcontinuously. The actual annual inflation rates for the second and third years respectively was 2.6% and 4.2% compounded continuously. The USgovernment is considered a risk free borrower which means there is no chance of default.b. Calculate the annual Real Interest Rate compounded continuously.(Enter answer as a decimal and round to the nearest 3 decimal places.)

Annual interest rate = 3.2% + rate of inflation Amount borrowed = 100,000 Inflation in year 1 = 2.4%…

Answered: Porter makes three year loans which…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 8P

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Sheon Industry Producing of Italy borrows $ 16,000,000 at LIBOR plus a lending margin of 1.35 % per annum on a six month rollover basis from a UK bank. If six-month LIBOR is 5.6% over the first six-month interval and 5 1/4% over the second six-month interval, calculate how much Sheon Industry pay in interest over the first year of its Eurodollar loan.
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