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Interest

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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**Question:** Grecian Tile Manufacturing of Athens, Georgia, borrows $1,500,000 at LIBOR plus a lending margin of 1.39 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 5.20 percent over the first six-month interval and 5.445 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan? *(Do not round intermediate calculations. Round your answer to 2 decimal places.)* **Diagram Explanation:** There is a labeled diagram titled "Interest" with an arrow pointing to the right. This diagram indicates the direction or flow of calculating or applying interest, possibly highlighting the formula or methodology to be used in the calculation.
Transcribed Image Text:**Question:** Grecian Tile Manufacturing of Athens, Georgia, borrows $1,500,000 at LIBOR plus a lending margin of 1.39 percent per annum on a six-month rollover basis from a London bank. If six-month LIBOR is 5.20 percent over the first six-month interval and 5.445 percent over the second six-month interval, how much will Grecian Tile pay in interest over the first year of its Eurodollar loan? *(Do not round intermediate calculations. Round your answer to 2 decimal places.)* **Diagram Explanation:** There is a labeled diagram titled "Interest" with an arrow pointing to the right. This diagram indicates the direction or flow of calculating or applying interest, possibly highlighting the formula or methodology to be used in the calculation.
Expert Solution
Step 1: Formula

We can determine the interest paid using the formula below:

I n t e r e s t space p a i d space equals space L o a n space a m o u n t space cross times space L I B O R thin space plus space M a r g i n cross times 6 over 12

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