question archive Amcor Limited, an Australian company, can issue three years Swiss franc-denominated bonds with a coupon rate of 3
Amcor Limited, an Australian company, can issue three years Swiss franc-denominated bonds with a coupon rate of 3
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Amcor Limited, an Australian company, can issue three years Swiss franc-denominated bonds with a coupon rate of 3.01 per cent. Assuming that Amcor can issue bonds worth A$6.86 million that the current exchange rate of the Swiss franc is A$1.2017, and that the forecasted exchange rate of the franc in each of the next three years is A$1.4918, what is the annual cost in the percentage of financing for the franc-denominated bonds? (enter the two decimal number without sign or symbol)
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Answer:
| Particulars | Amount | |
| Bond issue amount (A$) | A | 68,60,000 |
| Exchange Rate | B | 1.2017 |
| Bond issue amount (Swiss Franc) | C=A/B | 57,08,580 |
| Interest rate | D | 3.01% |
| Interest amount (in Swiss Franc) | E=D*C | 1,71,828 |
| Future Exchange Rate | F | 1.4918 |
| Interest amount (in A$) | G=F*E | 2,56,333 |
| Cost of financing | H=G/A | 3.74% |
As future exchange rate is fixed we have calculated cost of financing based on 1 year interest cost. Hence cost of financing is 3.74%.
