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A company borrows $1,500,000 at LIBOR plus a lending margin of 1.25 percent per year on a six-month rollover basis from a London bank. If six-month LIBOR is 4 ½ % over the first six-month interval and 5 3/8 % over the second six-month interval, how much will a company pay in interest over the first year of its Eurodollar loan?
Solution: $1,500,000 x (.045 + .0125)/2 + $1,500,000 x (.05375 + .0125)/2
= $43,125 + $49,687.50 = $92,812.50.
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