On September 30, 2017, Ericson Company negotiated a two-year, 1,000,000 dudek loan from a foreign bank at an interest rate of 2 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2019. Ericson prepares U.S.-dollar financial statements and has a December 31 year-end. September 30, 2017 $ 0.100 December 31, 2017 0.105 September 30, 2018 0.120 December 31, 2018 0.125 September 30, 2019 0.150 Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in dollars on the loan in each of the three years 2017, 2018, and 2019. (Do not round intermediate calculations.)
On September 30, 2017, Ericson Company negotiated a two-year, 1,000,000 dudek loan from a foreign bank at an interest rate of 2 percent per year. It makes interest payments annually on September 30 and will repay the principal on September 30, 2019. Ericson prepares U.S.-dollar financial statements and has a December 31 year-end.
| September 30, 2017 | $ | 0.100 | |
| December 31, 2017 | 0.105 | ||
| September 30, 2018 | 0.120 | ||
| December 31, 2018 | 0.125 | ||
| September 30, 2019 | 0.150 |
Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in dollars on the loan in each of the three years 2017, 2018, and 2019. (Do not round intermediate calculations.)
Foreign exchange loss
A foreign exchange gain/loss occurs when a company buys and/or sells goods and services in a foreign currency, and that currency fluctuates relative to their home currency
Effective Cost of Borrowing
The effective cost of borrowing can be determined by considering the total interest expense and foreign exchange losses related to the loan and comparing this with the amount borrowed
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