Question

?(Related to Checkpoint? 9.1) ?(Floating-rate loans) The Bensington Glass Company entered into a loan agreement with the? firm's bank to finance the? firm's working capital. The loan called for a floating rate that was 29 basis points ?(0.29 ?percent) over an index based on LIBOR. In? addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of 2.23 percent and a minimum of 1.79 percent. Calculate the rate of interest for weeks 2 through 10.

Date	LIBOR
Week 1	1.94?%
Week 2	1.64?%
Week 3	1.47?%
Week 4	1.39?%
Week 5	1.57?%
Week 6	1.68?%
Week 7	1.68?%
Week 8	1.87?%
Week 9	1.91?%

The rate of interest for week 2 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 3 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 4 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 5 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 6 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 7 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 8 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 9 is _____%. ?(Round to two decimal? places.)

The rate of interest for week 10 is _____%. ?(Round to two decimal? places.)

Answer 1

For week 2, the rate of interest is coming as =week 1 closing LIBOR+29 basis point=1.94%+0.29%=2.23%

this is exactly equal to the interest rate cap 2.23%.

So,The rate of interest for week 2 is 2.23%

For week 3, the rate of interest is coming as =week 2 closing LIBOR+29 basis point=1.64%+0.29%=1.93%

this is between decided interest rate floor 1.79% and interest rate cap 2.23%.

So,The rate of interest for week 3 is 1.93%

For week 4, the rate of interest is coming as =week 3 closing LIBOR+29 basis point=1.47%+0.29%=1.76%

but as decided interest rate floor is 1.79%, week 4 interest rate can't less than 1.79%

So,The rate of interest for week 4 is 1.79%

For week 5, the rate of interest is coming as =week 4 closing LIBOR+29 basis point=1.39%+0.29%=1.68%

again in Week 5, calculated interest rate coming 1.68%, which is well below the decided interest rate floor is 1.79%.That is not accepted.

So,The rate of interest for week 5 is 1.79%

For week 6, the rate of interest is coming as =week 5 closing LIBOR+29 basis point=1.57%+0.29%=1.86%

this is between decided interest rate floor 1.79% and interest rate cap 2.23%.

So, The rate of interest for week 6 is 1.86%

For week 7, the rate of interest is coming as =week 6 closing LIBOR+29 basis point=1.68%+0.29%=1.97%

this is between decided interest rate floor 1.79% and interest rate cap 2.23%.

So, The rate of interest for week 7 is 1.97%

For week 8, the rate of interest is coming as =week 7 closing LIBOR+29 basis point=1.68%+0.29%=1.97%

this is again in between decided interest rate floor 1.79% and interest rate cap 2.23%.

So, The rate of interest for week 8 is 1.97%

For week 9, the rate of interest is coming as =week 8 closing LIBOR+29 basis point=1.87%+0.29%=2.16%

this is again in between decided interest rate floor 1.79% and interest rate cap 2.23%.

So, The rate of interest for week 9 is 2.16%

For week 10, the rate of interest is coming as =week 9 closing LIBOR+29 basis point=1.91%+0.29%=2.20%

this is again in between decided interest rate floor 1.79% and interest rate cap 2.23%.

So, The rate of interest for week 10 is 2.20%