After looking at a fixed-rate loan, Ace-Campbell MFg. entered into a floating-ra

Question

After looking at a fixed-rate loan, Ace-Campbell MFg. entered into a floating-rate loan agreement. This loan is set at 39 basis points (or.39percent) over an index based on LIBOR. Ace-Campbell is concerned that the LIBOR index may go up cauasing the loan to climb. That concern comes from the fact that the rate on te loan adjusts weekly based on the closing value of the LIBOR index for the previous week. Fortunately for Ace-Campbell, this loan has a mazimum annual rate of 2.23 percent. It also has a miminum annual rate of 1.52 percent. Given the folling information, calucate the inerest rate that Ace-Campbell would pay during weeks 2 through 10.

a. the rate of inerest for week 2 is what %

b the rate of inerest for week 3 is what %

c the rate of interst for week 4 is what %

d. the rate of interst for week 5 is what 5

Date Labor week 1 1.95% week 2 1.62% week 3 1.52% week4 1.29% week 5 1.63%

Explanation / Answer

Computation of the interest rates are as follows:

Date LIBOR Rate of interest Total rate Effective rate Week 1 1.95 1.95+0.39 2.34 2.23% Week 2 1.62 1.62+0.39 2.01 2.01 Week 3 1.52 1.52+0.39 1.91 1.91 Week 4 1.29 1.29+0.39 1.68 1.68 Week 5 1.63 1.63+0.39 2.02 2.02

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