Petrol lbérico. Petrol lbérico, a European gas company, is borrowing $550,000,00

Question

Petrol lbérico. Petrol lbérico, a European gas company, is borrowing $550,000,000 via a syndicated eurocredit for six years at 120 basis points over LIBOR. LIBOR for the loan will be reset every six months. The funds will be provided by a syndicate of eight leading investment bankers, which will charge up-front fees totaling 1.5% of the principal amount. What is the effective interest cost for the first year if the annual LIBOR is 3.50% during the first six months and 3.70% during the second six months The effective interest cost for the first year is % Round to two decimal places.

Explanation / Answer

Loan Amount                            550,000,000 upfront fee paid 1.50% Fees Paid upfront                                8,250,000 Funds received net of upfront commission                            541,750,000 Interest paid for First 6 month =3.5%+1.2% 4.70% Interest paid for last 6 month =3.7%+1.2% 4.90% Interest paid for First 6 month =550000000*4.7%*6/12    12,925,000 Interest paid for last 6 month =550000000*4.9%*6/12    13,475,000 total interest paid    26,400,000 Effective Interest rate =26400000*100/541750000 4.87%

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