Principles of Business Finance ylia Towson 174/17 10241 PM Homework: Chapter 9 H

Question

Principles of Business Finance ylia Towson 174/17 10241 PM Homework: Chapter 9 Homework Score: 0 of 1 pt P9-2 (similar to) Save 2019(4 complete) HW Score: 16.67%, 1 ,5 of 9 pts Question Help * (Floating-rate loans) After looking at a fxed-rate loan, Ace-Campbell Mfg entered into a floating-rate loan agreement. This loan is set at 39 basis points (or 0.39 percent) over an index based on LIBOR. Ace-Campbell is concerned that the LIBOR index may go up, causing the loan to climb. That concem comes from the fact that the rate on the loan adjusts weekly based on the closing value of the LIBOR index for the previous week. Fortunately for Ace-Campbell, this loan has a maximum annual rate of 2.18 percent. It also has a minimum annual rate of 1.46 percent. Given the following information, calculate the interest rate that Ace-Campbell would pay during weeks 2 through 10 Date Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 LIBOR 1 . 93% 1.69% 1.49% 1.37% 1.61% 1.67% The rate of interest tor week2s(Round to two decimal places.)

Explanation / Answer

1)The rate of interest for week 2 is =1.93%+0.39%=2.32% but the max annual rate can be 2.18%
so it is 2.18%
2)The bond yield to maturity can be found using rate formuale in excel
=rate(nper,pmt,pv,fv,type)
=rate(11,(8%*1000),-1155,1000,0)
=6.03%
The market value of bond can be found using pv formuale
=pv(rate,nper,pmt,fv,type)
=pv(5%,11,(8%*1000),1000,0)
=1259.11
Yes we can purchase the bond

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