14-92 Assume That Instead of Investing in Euro Bonds at a Fixed

question 70

Multiple Choice

14-92 Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent,it invests them in variable rates of LIBOR + 1.5 percent,reset every six months.The current LIBOR rate is 5 percent.What is the spread earned by the bank if LIBOR at the end of six months is 5.5 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.

• A)0.50 percent.
• B)0.68 percent.
• C)0.86 percent.
• D)0.90 percent.
• E)0.95 percent.

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Definitions:

Personal Fable

A manifestation of adolescent egocentrism in which adolescents believe their thoughts, feelings, and experiences are more special and unique than anyone else’s, as well as the sense that they are invulnerable.

Imaginary Audience

A manifestation of adolescent egocentrism in which they assume that they are the focus of others’ attention.

Social Referencing

Seeking information from caregivers about how to interpret unfamiliar or ambiguous events by observing their emotional expressions and reactions.

Operational Reasoning

The stage of cognitive development, as identified by Piaget, in which children develop the ability to think logically about abstract concepts and concrete events.