Question: Gobble 2 Corporation is developing a turkey-location app, and so takes out a $10,000,000 two-year loan at a variable rate of LIBOR plus 2.0%. The

Gobble² Corporation is developing a turkey-location app, and so takes out a $10,000,000 two-year loan at a variable rate of LIBOR plus 2.0%. The LIBOR rate will be reset each year at an agreed-upon date. The current LIBOR rate is 3.0% per year. The loan has an upfront fee of 1.00%.

a.) First, assume LIBOR does not change during the period. What is the all-in-cost of the Gobble² loan including the LIBOR rate, fixed spread, and upfront fee?

b.) If LIBOR jumps to 5.00% immediately after the Year 1 payment, what will be Gobble²s all-in-cost for the entire loan?

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