Blenman Corporation,based in Canada,arranged a 2-Year,$1,000 Loan to Fund a Project

question 45

Multiple Choice

Blenman Corporation,based in Canada,arranged a 2-year,$1,000 loan to fund a project in Mexico.The loan is denominated in Mexican pesos,carries a 10.0% nominal rate,and requires equal semiannual payments.The exchange rate at the time of the loan was 10.1366 pesos per dollar,but it dropped to 9.5511 pesos per dollar before the first payment came due.The loan was not hedged in the foreign exchange market.Thus,Blenman must convert Canadian dollars into Mexican pesos to make its payments.If the exchange rate remains at 9.5511 pesos per dollar through the end of the loan period,what effective interest rate will Blenman end up paying on the loan?

• A)11.50%
• B)12.44%
• C)13.00%
• D)15.80%

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Definitions:

Contribution Margin Ratio

A financial metric that shows the portion of sales revenue that exceeds variable costs, indicating how sales affect profitability.

Fixed Expenses

A rephrased definition could focus on the costs that do not vary with the level of production or business activity, which may include long-term contractual obligations and basic operational costs.

Minimum Required Rate

Refers to the lowest acceptable rate of return on investment that a business or individual expects to achieve.

Turnover

In business, turnover is the total amount of revenue generated by a company from the sale of goods or services, or it can refer to the rate at which employees leave a business and are replaced by new employees.