TABLE 7.2 Use the Information for Polaris Corporation to Answer the Following

question 59

Multiple Choice

TABLE 7.2
Use the information for Polaris Corporation to answer the following question(s) .
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%

-Refer to Table 7.2. If the LIBOR rate jumps to 5.00% after the first year what will be the all-in-cost (i.e. the internal rate of return) for Polaris for the entire loan?

• A) 5.25%
• B) 5.50%
• C) 6.09%
• D) 6.58%

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Definitions:

Discrete Distribution

A statistical distribution that shows the probabilities of outcomes that take on discrete values, such as whole numbers.

Uniform Distribution

A type of probability distribution in which all outcomes are equally likely to occur.

Continuous Random Variable

A random variable that can take an infinite number of values within a given range.

Continuous Probability Distributions

Describes the distribution of possible values for a continuous random variable, where any value within an interval can be a possible outcome.