Question

The Bensington Glass Company entered into a loan agreement with the​ firm's bank to finance the​ firm's working capital. The loan called for a floating rate that was 28 basis points ​(0.28 ​percent) over an index based on LIBOR. In​ addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of 2.15 percent and a minimum of 1.77 percent. Calculate the rate of interest for weeks 2 through 10.

Date	LIBOR
Week 1	1.98​%
Week 2	1.67​%
Week 3	1.52​%
Week 4	1.31​%
Week 5	1.63​%
Week 6	1.64​%
Week 7	1.69​%
Week 8	1.89​%
Week 9	1.88​%

Answer 1

The maximum rate showing is 2.15% and minimum rate showing 1.77%.

• Week 2 rate - week 1 rate + 0.28%=1.98%+0.28%=2.26%
• Week 3 rate - week 2 rate + 0.28%=1.67%+0.28%=1.95%
• Week 4 rate - week 3 rate + 0.28%= 1.52%+0.28%=1.80%
• Week 5 rate - week 4 rate + 0.28%=1.31%+0.28%=1.77%(as we know the minimum rate is 1.77% & week 5 rate is lower rate than the minimum rate shown,so it will take 1.77% instead of 1.59%)
• Week 6 rate - week 5 rate + 0.28%=1.63%+0.28%=1.91%
• Week 7 rate - week 6 rate + 0.28%=1.64%+0.28%=1.92%
• Week 8 rate - week 7 rate + 0.28%=1.69%+0.28%=1.97%
• Week 9 rate - week 8 rate + 0.28%=1.89%+0.28%=2.17%
• Week 10 rate- week 9 rate + 0.28%=1.88%+0.28%=2.16%