Question

Scenario: British investment fund Sigma Ventures Limited (Sigma) plans to lend $200m at an annual interest rate of 12.5% for four years to a UK start-up company called BigBytes Limited. Beta has fixed its initial exchange rate to 1.1 dollars to the pound and the initial principal will be converted into pounds at that rate. There are no stage payments involved in the deal. Give your answers below to the nearest penny. a) What will be the pound-value of the loan at the start of the loan period?

Answer 1

The pound-value of the $200 million loan from Sigma Ventures Limited to BigBytes Limited at the start of the loan period is approximately £181,818,181.82, given the exchange rate of 1.1 dollars to the pound.

Step-by-step explanation:

The student is asking about the pound-value of a loan from Sigma Ventures Limited to BigBytes Limited at the start of the loan period, given a fixed exchange rate of 1.1 dollars to the pound. To calculate this, one needs to convert the $200 million loan into British pounds using the exchange rate provided — divided by the exchange rate of 1.1 dollars to the pound.

Calculation: $200,000,000 / 1.1 = £181,818,181.82.

So, at the start of the loan period, the loan value in pounds is approximately £181,818,181.82.