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

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 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?

Step by Step Solution

★★★★★

3.44 Rating (163 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

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

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

768-B-F-F-M (7254).docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!

Using these sources and your own knowledge, explain why, despite wide-ranging debt cancellation, the Third World debt crisis has not been solved. Source K The Third World debt crisis is another issue...

1. How do you respond to the view that Chinas competitive advantage is based solely on a low-cost strategy that results from its workers low wages? 2. Do you see dangers from over-reliance on China...

Assume you work as a staff member in a large accounting department for a multinational public company. Your job requires you to review documents relating to the company's equipment purchases. Upon...

5. A large, multinational bank has committed to lend a firm $35 million in 45 days at LIBOR plus 200 bps. The loan will have a maturity of 90 days, at which time the principal and all interest will...

A large bank has committed to lend a firm $25 million in 30 days at LIBOR plus 1%. The loan will have a maturity of 90 days, at which time the principal and interest will be repaid. The bank is...

ABC Bank has committed to lend a firm $30 million in 90 days at LIBOR plus 2.5 points. The loan will have a maturity of 60 days. The bank is concerned about volatile interest rates and decides to use...

question : is it good time for a company to issue bonds? ( 350 word) Case Study: Alibaba's Bonds Dilemma: Location, Timing, and Pricing Emir Hersic, Ivey Publishing, In November 2014, the chief...

undefined Show all your work. Round to 6 decimal places in the intermediate steps and round the final result to 4 decimals. You may type your answers in a Word document or scan your handwritings into...

Hi. I'm asked to take this class for graduation but I don't know how to do any of this. Please help me! I'm already devastated with the whole concept and Finance is new to me. Idk what I'm doing in...

Why do so many self-directed teams perform poorly? What can be done to improve their performance?

(7) = If f(x) = eg(x), where g(7) = 4 and g' (7) = 3. Find f'(7).

Knowledge of the key safeguards provided by these regulations can often protect you against unexpected and substantial losses on your accounts. Let s discuss these protections further. Read the...

A random sample of students from a city school scored the following marks for a paper in the annual examination: 45, 57, 68, 34, 50, 32, 89, 47, 97, 67, 79, 84, 43, 35, 68, 55, 72, 63, 68, and 49....

Charlies Cycles Inc. has $110 million in sales. The company expects that its sales will increase 5% this year. Charlies CFO uses a simple linear regression to forecast the companys inventory level...

Edney Manufacturing Company has $2 billion in sales and $0.6 billion in fixed assets. Currently, the companys fixed assets are operating at 80% of capacity. a. What level of sales could Edney have...

Morrissey Technologies Inc.s 2008 financial statements are shown here. Suppose that in 2009, sales increase by 10% over 2008 sales. The firm currently has 100,000 shares outstanding. It expects to...

stock has had the following year-end prices and dividends: Year Price ($) Dividend ($) 1 93.27 - 2 91.08 1.22 3 95.38 1.29 4 95.28 1.34 5 96.87 1.53 6 97.72 1.65 What is the geometric average return...

What is the primary focus of Business Process Reengineering ( BPR ) ? a ) Incremental improvement b ) Radical redesign of processes c ) Quality control d ) Employee training

Abercrombie \& Fitch is trading at $21.14. Put options with a strike price of $19.85 are priced at $0.87. What is the intrinsic value of the option, and what is the time value? The intrinsic value of...