TropiKana Inc., a U.S firm, has just borrowed euro 1,000,000 to make improvements to an Italian fruit plantation and processing plant. If the interest rate is 5.50% per year and the Euro appreciates against the dollar from $1.40/€ at the time the loan was made to $1.45/€ at the end of the first year, how much interest and principle will TropiKana pay at the end of the first year if they repay the entire loan plus interest (rounded)?

Question

Quizplus · Accepted Answer

First, calculate the interest: 1,000,000 * 5.5% = 55,000 euros. Then, add the interest to the principal to get the total amount due in euros: 1,000,000 + 55,000 = 1,055,000 euros. Finally, convert this amount to dollars using the new exchange rate: 1,055,000 * $1.45/€ = $1,529,750.