Question

III Company XYZ establishes a $250 million (revolving) credit line with Bank:                   term: six months...

III

Company XYZ establishes a $250 million (revolving) credit line with Bank:

                  term: six months

                  payment frequency: monthly

                  start date: July 1 2018

                  interest rate: 1-month LIBOR + 1%

                  use the rates in question II for 1-month LIBOR

                  assume the LIBOR rate on the first day of each month is the rate used for all drawdowns that month

                  unused credit line fee: ¼ %

                  amortization schedule: none

Here are XYZ’s drawdowns (and repayments):

July 2     borrow 50,000,000

July 20 borrow 10,000,000

Aug 25   borrow 10,000,000

Sept 1    repay 20,000,000

Sept 30                   borrow 6,000,000

Oct 25   repay 50,000,000

Nov 11 borrow 100,000,000

Data for 3-month LIBOR%

                  June 1 2018        1.75                          June 1 2019        2.5

                  July 1 2018          1.9                             July 1 2019          2.45

                  August 1 2018   1.98                          August 1 2019   2.48

                  Sept 1 2018         2.05                          Sept 1 2019         2.5

                  Oct 1 2018           2.10                          Oct 1 2019           2.60

                  Nov 1 2018          2.10                          Nov 1 2019          2.65

                  Dec 1 2018          2.22                          Dec 1 2019          2.72

                  Jan 1 2019           2.20                          Jan 1 2020           2.80

                  Feb 1 2019           2.10                          Feb 1 2040           2.99

                  March 1 2019    2.18                          March 1 2020    2.81

                  April 1 2019        2.25                          April 1 2020        3.05

                  May 1 2019         2.35                          May 1 2020         3.3

What are the monthly payments XYZ makes to Bank? Separate the interest from the fee payments.

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Answer #1

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calculations of interest and fee payment

date. int. fee

aug 1.2018. 853547(note 1) 475000(note 1)

sept 1 2018. 1012258 (note 2) 45000(note 2)

oct 1 2018. 823365 (note 3) 485000

nov 1. 2018. 762290. 610000

dec 1. 2018. 1234333 360000

jan 1. 2018. 1801000. 360000

note 1

int = (50000000*30/31)*1.633%=790322

(10000000*12/31)*1.633%=63225

TOTAL. =853547

fee 250 million - 60 million = 190 million *0.25% = 475000

here we are not provided with 1 month libor so 3 month libor is converted in 1 month libor as follows

1.9/3 =0.6333 therefore 0.633+1% =1.63%

note 2

int calculations = 60000000*1.633%=980000

[ 10000000*6/31]*1.66%=32258

total. 1012258

fee 180million * 0.25% = 450000

note 3

int 40000000*1.633%=653333

10000000*1.666%=166666

( 6000000/30)*1.683%=3366

total. 823365

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