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A Korean firm borrowed $1 million at 8% (per annum, annual compounding) for 3 years on...

A Korean firm borrowed $1 million at 8% (per annum, annual compounding) for 3 years on January 3, 1995. The exchange rate on the borrowing date was 791.8 Korean won per dollar.On the Maturity date (January 3, 1998), the exchange rate was 1695 Korean won per dollar.What was the effective borrowing rate (measured in Korean won) for this Korean firm?Your answer: ______________%(Do NOT include the "%" symbol. Round your answer to TWO decimal places.)

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Answer #1

At maturity the firm will require 1,000,000 x (1.08)3 = $1,259,712

current price = 1,000,000 x 791.8 = 791,800,000

Now at maturity = 1,695 x 1,259,712 = 2,135,211,840

791,800,000 x (x)3 = 2,135,211,840

x = 2.697

r = 1.392-1 = 0.3919

Borrowing rate is thus 39.19

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