Teltrex International Can Borrow $3,000,000 at LIBOR Plus a Lending

question 37

Multiple Choice

Teltrex International can borrow $3,000,000 at LIBOR plus a lending margin of 0.75 percent per annum on a three-month rollover basis from Barclays in London.Suppose that three-month LIBOR is currently 5 17⁄32 percent.Further suppose that over the second three-month interval LIBOR falls to 5 1⁄8 percent.How much will Teltrex pay in interest to Barclays over the six-month period for the Eurodollar loan?

• A)$79,921.875
• B)$91,171.88
• C)$96,174.39
• D)$364,687.52

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Definitions:

Opportunity Costs

The value of the best alternative that is foregone when a different option is chosen.

Special Order

A one-time order that is not considered part of the company’s normal ongoing business.

Capacity

The maximum output that a business can produce in a given period with available resources.

Production Constraint

Any factor that limits the volume or type of production a company can achieve, such as equipment capacity or availability of materials.