On 1st January 20X1, ATM Ltd borrows USD from a London bank. The loan is a 2-year floating interest rate loan with the principal is $300 million. The Interest is paid every 6 months at the rate of $-LIBOR+1.50% pa. The principal is repaid all at once at the loan maturity (i.e., an interest-only loan). To complete the loan application, the London bank also charges ATM with an upfront fee of 1.0% of the total loan proceed. The following table shows movements of $-LIBOR with various tenors over the coming 2 years. All figures are reported in % pa. Show cash flows from this loan to ATM.

 

Calculate the effective borrowing cost from this loan (show the result in both % per 6 month and % pa.)?

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Tenor 3-Month 6-Month 12-Month Date Observed 1st Jan X1 2.25 2.50 2.75 1st Jul X1 2.40 2.65 2.90 1st Jan X2 2.20 2.45 2.70 1st Jul X2 2.10 2.35 2.60 1st Jan X3 2.35 2.60 2.85 Tenor 3-Month 6-Month 12-Month Date Observed 1st Jan X1 2.25 2.50 2.75 1st Jul X1 2.40 2.65 2.90 1st Jan X2 2.20 2.45 2.70 1st Jul X2 2.10 2.35 2.60 1st Jan X3 2.35 2.60 2.85

Answer rating: 100% (QA)

Cash Flows For the upfront fee ATM Ltd 10 x 300 million 3 million For the interest payments 6 Month ... View the full answer