Exhibit 21.12
Use the Information Below for the Following Problem(S)
Suppose you are a loan officer for a commercial bank and one of your clients has just approached you about a one-year loan for $4,000,000. Interest on the new loan will be paid at the end of each quarter based on the prevailing level of LIBOR at the beginning of each quarter. The LIBOR yield curve in the cash market is as follows:
$\begin{array}{ll}
90 \text {-day LIBOR } & 2.70 \% \
180 \text {-day LIBOR } & 2.85 \% \
270 \text {-day LIBOR } & 3.10 \% \
360 \text {-day LIBOR } & 3.40 \%
\end{array}$
-Refer to Exhibit 21.12.What is the implied 90-day forward rate at the beginning of the second quarter?
A) 2.70%
B) 2.85%
C) 2.98%
D) 3.15%
E) 3.32%

Question

Exhibit 21.12
Use the Information Below for the Following Problem(S)
Suppose you are a loan officer for a commercial bank and one of your clients has just approached you about a one-year loan for $4,000,000. Interest on the new loan will be paid at the end of each quarter based on the prevailing level of LIBOR at the beginning of each quarter. The LIBOR yield curve in the cash market is as follows:
 $\begin{array}{ll}
90 \text {-day LIBOR } & 2.70 \% \
180 \text {-day LIBOR } & 2.85 \% \
270 \text {-day LIBOR } & 3.10 \% \
360 \text {-day LIBOR } & 3.40 \%
\end{array}$
-Refer to Exhibit 21.12.What is the implied 90-day forward rate at the beginning of the second quarter?
A) 2.70%
B) 2.85%
C) 2.98%
D) 3.15%
E) 3.32%

Quizplus · Accepted Answer

The implied 90-day forward rate at the beginning of the second quarter can be calculated using the formula for forward rates: $(1 + \frac{r_2 \times t_2}{360}) / (1 + \frac{r_1 \times t_1}{360}) - 1$. Using the given LIBOR rates, the calculation is $(1 + \frac{0.0285 \times 180}{360}) / (1 + \frac{0.027 \times 90}{360}) - 1$, which results in approximately 2.98%.

Exhibit 21 -Refer to Exhibit 21