(Floating-rate loans) After looking at a fixed-rate loan, Ace-Campbell Mfg. ente
ID: 2781098 • Letter: #
Question
(Floating-rate loans) After looking at a fixed-rate loan, Ace-Campbell Mfg. entered into a floating-rate loan agreement. This loan is set at 37 basis points (or 0.37 percent) over an index based on LIBOR. Ace Campbell is concemed that the LIBOR index may go up, causing the loan to climb. That concern 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 2.23 percent. It also has a minimum annual rate of 1.48 percent. Given the following information, calculate the interest rate that Ace-Campbell would pay during weeks 2 through 10 Week 1 Weck 2 Week 3 Week 4 Weck S Week 6 Weck 7 Week 8 Week 9 LIBOR 1.93% 1.61% 1.54% 1.38% 1.65% 1.64% 1.68% 1.86% 1.87% The rate of interest for week 2 is%. (Round to two decimal places.)Explanation / Answer
Rate of interest for week 2= LIBOR (1)+Floating rate
= 1.93%+0.37%
= 2.30%
However, the maximum annual rate on loan is 2.23%. Therefore, the rate of interest for week 2 is 2.23%
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