Determine the annualized loan rate for libors

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A large, multinational bank has committed to lend a firm $35 million in 45 days at LIBOR plus 200 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 percent and a premium of $40,000. Determine the annualized loan rate for LIBORs of 7 percent and 11 percent. Assume the payoff is based on 90 days and a 360-day year. The current LIBOR is 9 percent.

Reference no: EM132584799

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