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Grecian Tile Manufacturing of Athens, Georgia, borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 4.5 percent over the first six-month interval and 5.375 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan

Sagot :

Answer: 92812.50

Explanation:

The following information can be derived from the question:

Loan principal = $1,500,000

LIBOR for 1st 6 months = 4.50%

LIBOR for last 6 months = 5.375%

Lending margin per annum = 1.25%

The interest will then be:

= 1,500,000 × [(4.50% + 1.25%)/2] + 1,500,000 × [(5.375% + 1.25%)/2]

= 1,500,000 × [(0.045 + 0.0125)/2] + 1,500,000 × [(0.05375 + 0.0125)/2]

= 92,812.50

Therefore, the interest is 92812.50.

Tundexiidn

The amount that Grecian Tile will pay in interest over the first year of its Eurodollar loan is $92,812.5.

Given information

Loan principal = $1,500,000

LIBOR for 1st 6 months = 4.50%

LIBOR for last 6 months = 5.375%

Lending margin per annum = 1.25%

Interest over first year = $1,500,000*[(4.50% + 1.25%)/2] + $1,500,000 *[(5.375% + 1.25%)/2]

Interest over first year = $43,125 + $49,687.50

Interest over first year = $92,812.50

In conclusion, the amount that Grecian Tile will pay in interest over the first year of its Eurodollar loan is $92,812.5.

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