Question

In: Finance

Q4: The Slinger Metal Fabricating Company entered into a loan agreement with its bank to finance...

Q4: The Slinger Metal Fabricating Company entered into a loan agreement with its bank to finance the firm’s working capital. The loan called for a floating rate that was 30 basis points over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week within the bounds of a maximum annual rate of 2.55% and a minimum of 1.95%.

Week(t)

LIBOR (t) %

LIBOR (t-1)+Spread

Loan rate

1

2.3

2

2.25

?

?

3

1.66

?

?

4

1.58

?

?

5

1.35

?

?

6

1.63

?

?

7

1.88

?

?

8

1.78

?

?

9

1.93

?

?

10

1.66

?

?

Required:

  1. Calculate the LIBOR (t-1) +Spread and Loan rate for the weeks 2 through 10.
  2. Is the ceiling rate or floor rate violated during the loan period?
  3. To finance its long term investment, the Slinger Metal Fabricating Company has also issued a 12% bond that is to mature in nine years. The bond had a $1,000 par value, and interest is due to be paid annually. If the yield to maturity 10%, estimate the price of this bond

Solutions

Expert Solution

Use a spreadsheet for the ease in computations. Enter the values and the formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

The Bensington Glass Company entered into a loan agreement with the​ firm's bank to finance the​...
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 25 basis points (0.25 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 2.22 percent and a minimum of 1.75 percent. Calculate the rate of interest for weeks 2...
 The Bensington Glass Company entered into a loan agreement with the​ firm's bank to finance the​...
 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 27 basis points ​(0.27 ​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 2.25 percent and a minimum of 1.74 percent. Calculate the rate of interest for weeks 2...
The Bensington Glass Company entered into a loan agreement with the​ firm's bank to finance the​...
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 27 basis points ​(0.270.27 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 2.16 percent and a minimum of 1.71 percent. Calculate the rate of interest for weeks 2...
The DeBourgh Manufacturing Company was founded in 1909 as a metal-fabricating company in Minnesota by the...
The DeBourgh Manufacturing Company was founded in 1909 as a metal-fabricating company in Minnesota by the four Berg brothers. In the 1980s, the company ran into hard times, as did the rest of the metal-fabricating industry. Among the problems that DeBourgh faced were declining sales, deteriorating labor relations, and increasing costs. Labour unions had resisted cost-cutting measures. Losses were piling up in the heavy job-shop fabrication division, which was the largest of the company’s three divisions. A division that made...
?(Related to Checkpoint? 9.1) ?(Floating-rate loans) The Bensington Glass Company entered into a loan agreement with...
?(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...
A company wants a $3 million loan for a warehouse expansion. The bank will finance 100%...
A company wants a $3 million loan for a warehouse expansion. The bank will finance 100% of the project with a 5 year balloon and a 20 year amortization. Give a loan structure for both a 5.00% and 5.25% fixed rate. (Specifically, I am looking for help concerning the 5 year balloon)
On 1 July 2019, BrixtonLtd entered into a five-year lease agreement with Reliable Finance Ltd for...
On 1 July 2019, BrixtonLtd entered into a five-year lease agreement with Reliable Finance Ltd for an item of machinery. Brixton Ltd incurred initial direct costs of $658 to negotiate and arrange the lease. The lease agreement requires BrixtonLtd to make five annual lease payments of $20,000 per year paid at the beginning of each year (in advance: annuity due) on 1 July with the first payment on 1 July 2019. At the end of the lease term, BrixtonLtd will...
After lengthy telephone negotiations, Bernstein and Metal Manufacturers (MM) entered into an agreement whereby MM agreed...
After lengthy telephone negotiations, Bernstein and Metal Manufacturers (MM) entered into an agreement whereby MM agreed to sell Bernstein 20,000 pounds of nickel cathodes at $4.60 per pound. To secure the deal, Bernstein promised to send MM a check for $20,000, which MM was to hold in escrow until the nickel cathodes were ready for shipment. About a month later, Bernstein sent a letter confirming the oral negotiations and enclosed a $20,000 check as a “good faith deposit”. Bernstein also...
Q4) A bank offers you a choice between a 1-year cash loan at 11% pa, or...
Q4) A bank offers you a choice between a 1-year cash loan at 11% pa, or a 1-year gold loan at 2% pa. For the gold loan, interest and principal repayment have to be made in gold. The risk-free interest rate is 9.25% pa and the storage cost for gold is 0.5% pa. Compare the risk and borrowing costs associated with the cash and gold loan. Which loan do you prefer? (Hint: Don’t worry about convenience yield)
Paymaster Enterprises has arranged to finance its seasonal​ working-capital needs with a​ short-term bank loan. The...
Paymaster Enterprises has arranged to finance its seasonal​ working-capital needs with a​ short-term bank loan. The loan will carry a rate of 12 percent per annum with interest paid in advance​ (discounted). In​ addition, Paymaster must maintain a minimum demand deposit with the bank of 10 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow ​$110,000 for a period of 5 ​months, what is the annualized cost of the bank​ loan?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT