Question

Question text

Alphaget Inc., borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per annum on a three-month rollover basis from a London bank. If three-month LIBOR is 4 ½ percent over the first three-month interval and 5 3/8 percent over the second three-month interval, how much will Alphaget pay in interest over the first year of its Eurodollar loan?

Select one:

a. $46,406

b. $43,057

c. $47,658

d. $49,432

Answer 1

Given,

Borrowed amount = $1500000

First three month LIBOR (L₁) = 4 1/2% or 4.5%

Second three month LIBOR (L₂) = 5 3/8 % or 5.375%

Lending rate = 1.25%

Solution :-