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in b (ii), we are asked to calculate the gain or loss in Euro from using the swap arrangement. The answer is calculated as 5000m * (0.1430-0.1315) * 0.675.
However, shouldn’t we need to also include the interest savings calculated in (b)(i) as part the the gains?
No. We always assume that the cost of capital (and here we are told in the question to assume a discount rate of 14%) takes into account all costs including the interest on the loan.
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