Determine the annualized loan rate for libors

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Reference no: EM131325568

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.

Reference no: EM131325568

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