You are a funds manager for a large bank. On April 15, your bank lends a corporation

Question:

You are a funds manager for a large bank. On April 15, your bank lends a $35 million, with interest payments to be made on July 16, October 15, January 16, and next April 16. The amount of interest will be determined by LIBOR at the beginning of the interest payment period. On April 15, LIBOR is 8.0 percent. Your forecast is for declining interest rates, so you anticipate lower loan interest revenues. You decide to buy an interest rate floor with a strike set at 8 percent and a premium of $60,000. Determine the cash flows associated with the loan if LIBOR turns out to be 7.9 percent on July 16, 7.7 percent on October 15, and 8.1 percent next January 16. The payoff is based on the exact number of days and a 360-day year. If you have a financial calculator or spreadsheet with an IRR function, determine the and annualize it to determine your annualized return on the loan? Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...