A large, multinational bank has committed to lend a firm $25 million in 30 days at LIBOR plus 100 bps The loan will have a maturity of 90 days, at which time the principal and all interest will be repaid The bank is concerned about falling interest rates and decides to buy a put on LIBOR with a str...

LIBOR at 65 percent The option is worth 0095 00659036025000000 1875 ...

A large, multinational bank has committed to lend a firm $25 million in 30 days at LIBOR

Question:

A large, multinational bank has committed to lend a firm $25 million in 30 days at LIBOR plus 100 bps. The loan will have a of 90 days, at which time the principal and all interest will be repaid. The bank is concerned about falling interest rates and decides to buy a put on LIBOR with a strike of 9.5 percent and a premium of $60,000. Determine the annualized loan rate for LIBORs of 6.5 percent and 12.5 percent. Assume the payoff is based on 90 days and a 360-day year. The current LIBOR is 9.5 percent?
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...