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Blue Sky Associates Inc. based in New York borrowed €8,000,000 for 3 years at a rate...

Blue Sky Associates Inc. based in New York borrowed €8,000,000 for 3 years at a rate of 7.0% per annum. The spot rate at the beginning of the loan is $1.24/€. If the euro appreciates 4% in the first year, and 2% during the next two years, what is the effective US dollar cost in % of this debt? (Assume Blue Sky borrowed the euros to convert them to dollars and use as a dollar loan. Also assume this is a non-amortizing loan). Why is the effective rate in dollars higher or lower than the 7.0%?

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