Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,950,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Present value of the benefit of the concessionary loan = ?

Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,950,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. Present value of the benefit of the concessionary loan = ?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

Zeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government
has offered Zeda a concessionary loan of DKK 14,950,000 at a rate of 4 percent per annum. The normal
borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the
principal to be repaid in three equal annual installments. What is the present value of the benefit of the
concessionary loan? The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the
United States and 2.5 percent in Denmark.
Present value of the benefit of the concessionary loan = ?

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