Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of 0.75 percent per annum on a three-month rollover basis from Barclays in London.Suppose that three-month LIBOR is currently 5 17⁄32 percent.Further suppose that over the second three-month interval LIBOR falls to 5 1⁄8 percent.How much will Teltrex pay in interest to Barclays over the six-month period for the Eurodollar loan?

Question

Quizplus · Accepted Answer

For the first three-month period, the interest rate is 5 17/32 percent (which is 5.53125%) plus the lending margin of 0.75%, totaling 6.28125%. For a $3,000,000 loan, the interest for this period is $3,000,000 * 6.28125% * (3/12) = $47,109.375. For the second three-month period, with LIBOR at 5 1/8 percent (5.125%) plus the 0.75% margin, the total interest rate is 5.875%. The interest for this period is $3,000,000 * 5.875% * (3/12) = $44,062.5. Adding both periods together gives $47,109.375 + $44,062.5 = $91,171.875.

Teltrex International Can Borrow $3,000,000 at LIBOR Plus a Lending