Question

Bank USA recently purchased 10.3 million worth of euro-denominated one-year CDs that pay 12 percent interest annually. The current spot rate of U.S. dollars for euros is 1.104/€1. What is the total interest earned by Bank USA on these CDs?

Answer 1

Bank USA will earn total interest of $1.364544 million on its euro-denominated one-year CDs that pay 12 percent interest annually.

Step-by-step explanation:

The question is asking to calculate the total interest earned by Bank USA on its euro-denominated one-year CDs that pay 12 percent interest annually. Given that the bank purchased €10.3 million worth of CDs, we first calculate the total interest in euros by multiplying the principal amount by the interest rate.

Interest earned in euros = €10.3 million * 12% = €1.236 million.

However, to find the total interest in U.S. dollars, we need to use the current spot rate provided, which is $1.104 for every 1 euro.

Interest earned in U.S. dollars = €1.236 million * $1.104/€1 = $1.364544 million.

Hence, the total interest earned by Bank USA on these CDs is $1.364544 million.