(Related to Checkpoint 9.1) (Floating-rate loans) The Bensington Glass Company e

Question

(Related to Checkpoint 9.1) (Floating-rate loans) The Bensington Glass Company entered into a loan agreement with the firm's bank to finance the firm's working capital. The loan called for a floating rate that was 27 basis points (0.27 percent) over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of 2.19 percent and a minimum of 1.78 percent. Calculate the rate of interest for weeks 2 through 10 Date Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 1.91% 1.64% 1.53% 1.34% 1.62% 1.67% 1.68% 1.93% 1.92% The rate of interest for week 2 is 2.18 %. (Round to two decimal places.) The rate of interest for week 3 is 1.91 %. (Round to two decimal places.) The rate of interest for week 4 is | %. (Round to two decimal places.)

Explanation / Answer

For week 2, rate = 1.91 + 0.27 = 2.18%

for week 3, rate = 1.64 + 0.27 = 1.91% and so on...

For week 5, min rate = 1.78% applies and for week 9, max rate = 2.19% applies.

2.18 1.91 1.8 1.78 1.89 1.94 1.95 2.19 2.19

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