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Tabulate the cash flows associated with the loan

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In January 2021, your bank intends to make a loan of $25m with interest paid quarterly based on LIBOR at the beginning of each quarter. Assume LIBOR = 5% on Jan 1st 2021; 4.85% on April 1st 2021; 4.6% on July 1st 2021; and 5.05% on Sept 1st 2021. As an elite MSF graduate who is working in the bank, you proposed an interest rate floor instrument to curb the interest rate risk on your bank's future cash flows related to the loan. The strike price of the floor instrument is 5% while the floor instrument premium is $45,000.

You need to tabulate the cash flows associated with the loan based on the information above. (hint: assume the year has 360 days and each quarter has 90 days)

Reference no: EM132652877

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