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 25 basis points

​(0.25 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 2.19 percent and a minimum of 1.76 percent. Calculate the rate of interest for weeks 2 through 10.

Date	LIBOR
Week 1	1.98%
Week 2	1.62%
Week 3	1.48%
Week 4	1.34%
Week 5	1.57%
Week 6	1.67%
Week 7	1.75%
Week 8	1.91%
Week 9	1.91%

Answer 1

The rates will be based on LIBOR of the previous week (LIBOR + 0.25) and will not be more than 2.19 or less than 1.76. Hence, rates for the different weeks are-

Week 2 = 1.98 + 0.25 = 2.23 Since it is more than 2.19, the rate will be 2.19

Week 3 = 1.62 + 0.25 = 1.87%

Week 4 = 1.48 + 0.25 = 1.73% (less than minimum allowed) It will be 1.76%

Week 5 = 1.34 + 0.25 = 1.59% (not allowed) It will be 1.76%

Week 6 = 1.57 + 0.25 = 1.82%.

Week 7 = 1.67 + 0.25 = 1.92%

Week 8 = 1.75 + 0.25 = 2%

Week 9 = 1.91 + 0.25 = 2.16%

Week 10 = 1.91 + 0.25 = 2.16%.