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In 1989 and 1990, the Japanese company Mitsubishi Estate Co. paid the Rockefeller family $1.4 billion for an 80% stake in New York's Rockefeller center. At the time, the exchange rate was 145 yen/$. When the investor went to sell the building 5 years later, in early 1995, the exchange rate was 85 yen/$ and the property's value had decreased to $800 million.

Assume the purchase was $1.1 billion in total and that the value declines to $450 million. Suppose the investor financed the purchase with a $100 million down payment in yen and a $1 billion loan accumulating interest at the rate of 8% per annum. Since it is a zero-coupon loan, the interest on it (along with the principal) is not due and payable until the building is sold. How much has the investor lost in yen terms? In dollar terms?

Financial Management, Finance

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