(Floating-rate loans) The Bensington Glass Company entered into a loan agreement
ID: 2798029 • Letter: #
Question
(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 26 basis points (.26 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 2.22percent and a minimum of 1.78 percent. Calculate the rate of interest for weeks 2 through 10.
Date
LIBOR
Week 1
1.951.95%
Week 2
1.611.61%
Week 3
1.451.45%
Week 4
1.331.33%
Week 5
1.571.57%
Week 6
1.591.59%
Week 7
1.681.68%
Week 8
1.931.93%
Week 9
1.881.88%
Date
LIBOR
Week 1
1.951.95%
Week 2
1.611.61%
Week 3
1.451.45%
Week 4
1.331.33%
Week 5
1.571.57%
Week 6
1.591.59%
Week 7
1.681.68%
Week 8
1.931.93%
Week 9
1.881.88%
Explanation / Answer
Date LIBOR LIBOR(t-1 ) + .26% Adjusted Range max 2.22% min.1.75% Week 1 1.95% Week 2 1.61% 2.21% 2.21% Week 3 1.45% 1.87% 1.87% Week 4 1.33% 1.71% 1.78% Week 5 1.57% 1.59% 1.78% Week 6 1.59% 1.83% 1.83% Week 7 1.68% 1.85% 1.85% Week 8 1.93% 1.94% 1.94% Week 9 1.88% 2.19% 2.19%
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