Determine the annualized cost of the loan

Assignment Help Financial Management

Reference no: EM131323415

Suppose a firm plans to borrow $5 million in 180 days. The loan will be taken out at whatever LIBOR is on the day the loan begins and will be repaid in one lump sum, 90 days later. The firm would like to lock in the rate it pays so it enters into a forward rate agreement with its bank.

The bank agrees to lock in a rate of 12 percent.

Determine the annualized cost of the loan for each of the following outcomes. Interest is based on 90 days and a 360-day year.

a. LIBOR in 180 days is 14 percent.

b. LIBOR in 180 days is 8 percent.

Reference no: EM131323415

Questions Cloud

What is the issue price per share and pre-money valuation : A potential investor is seeking to invest $500,000 in a venture, which currently has 1,000,000 shares held by its founders, and is targeting a 50% return five years from now. The venture is expected to produce half a million dollars in income per yea..

Create a marketing proposal for the product : As the marketing manager, you have been asked to create a marketing proposal for the product or industry you selected. In your introduction, give a history of the product or industry you have selected earlier. Who are the key competitors?In the b..

What are the effects on equities : What is the effect upon carrying value and earnings for the scenario presented - What are the effects on equities?

Is there any chance of governmental variables at play : Based on the four points of the diamond, are firms likely to be successful? Is there any chance of governmental variables at play in your industry or country? If so, how might they improve or detract from national advantage?

Determine the annualized cost of the loan : Determine the annualized cost of the loan for each of the given outcomes. Interest is based on 90 days and a 360-day year.

Demonstrate and apply knowledge of approaches : Demonstrate and apply knowledge of factors to consider when planning to work with a chosen community. Demonstrate and apply knowledge of approaches that will facilitate engagement of the community. Demonstrate and apply knowledge and skills required ..

Design a randomized groups experiment : Design a randomized groups experiment to test the hypothesis that children who watch an hour-long violent television show subsequently play in a more aggressive fashion than children who watch a nonviolent TV show or who watch no show whatsoever.

Identifying operations management practices : Write a 5-7 page paper in regards to the case study attached Apple case located above. This is an opportunity to synthesize your prior learning in a real-world business scenario while focusing on identifying operations management practices as well..

Find the value of the fra from the perspective of the party : Find the value of the FRA from the perspective of the party paying fixed and receiving floating as of the point in time at which the above term structure applies.

User Account

All Pages