14-93 Assume That Instead of Investing in Euro Bonds at a Fixed

question 28

Multiple Choice

14-93 Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent,the FI invests them in variable rates of LIBOR + 1.5 percent,reset every six months.The current LIBOR rate is 5 percent.Assume both interest and principal will be reinvested in six months.Assume the exchange rate remains at €1.75/$ at the end of the year.What should be the LIBOR rates in six months in order for the bank to earn a 1 percent spread?

• A)5.25 percent.
• B)5.48 percent.
• C)5.76 percent.
• D)5.86 percent.
• E)5.94 percent.

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