TABLE 8.2
Use the information for Polaris Corporation to answer the following question(s).
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%

-Refer to Table 8.2.What portion of the cost of the loan is at risk of changing?
A)the LIBOR rate
B)the spread
C)the upfront fee
D)all of the above

Question

TABLE 8.2
Use the information for Polaris Corporation to answer the following question(s).
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%
 
-Refer to Table 8.2.What portion of the cost of the loan is at risk of changing?
A)the LIBOR rate 
B)the spread 
C)the upfront fee 
D)all of the above

Quizplus · Accepted Answer

The portion of the cost of the loan that is at risk of changing is the LIBOR rate, as it will be reset at an agreed upon date each year. The spread and upfront fee are both fixed, meaning they will not change during the two-year loan term.

TABLE 8.2 Use the Information for Polaris Corporation to Answer the Following