2. Retail Manufacturing of NYC, borrows $2,500,000 at LIBOR plus a lending margin of 1.15 percent...

2. Retail Manufacturing of NYC, borrows $2,500,000 at LIBOR plus a lending margin of 1.15 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 3 ½ percent over the first six-month interval and 4 3/8 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan?

You will use the provided information to Calculate the paid interest over the first year of its Eurodollar loan.

Formula is provided as follows: Please provide the brief interpretation to support your calculation.

Formula:
LIBOR x (LIBOR IR + Lending Margin)/2 + LIBOR x (Interval interest + lending margin) /2

Expert Solution

Interest over the first year of its Eurodollar loan =LIBOR x (LIBOR IR + Lending Margin)/2 + LIBOR x (Interval interest + lending margin) /2

= $2500000 *(0.035 + 0.0115 )/2 + $2500000 *(0.04375 + 0.0115)/2

= $58125 + $69062.5

= $127187.5

Grecian Tile pay in interest over the first year of its Eurodollar loan is $127187.5

jeff jeffy answered 2 years ago

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