USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 84

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a quarterly interest expense based on the prevailing level of LIBOR at the beginning of each quarter. As is the bank's convention on all such loans, the amount of the interest payment would then be paid at the end of the quarterly cycle when the new rate for the next cycle is determined. You observe the following LIBOR yield curve in the cash market:

-Refer to Exhibit 15.3. If 90-day LIBOR rises to the levels "predicted" by the implied forward rates, what will the dollar level of the bank's interest receipt be at the end of the second quarter?

• A) $40,500.00
• B) $38,250.00
• C) $35,250.00
• D) $37,064.25
• E) $34,500.00

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Definitions:

Price Elasticity

A measure of the responsiveness of quantity demanded or supplied to changes in price.

Price Elasticity

An indicator of the sensitivity of consumer demand for a product to variations in its price, demonstrating how significantly the quantity of the good demanded changes in response to price fluctuations.

Quantity Supplied

The quantity of a product or service that manufacturers are prepared to offer for sale at a certain price during a defined time frame.

Inelastic

A characteristic of a good or service whose demand does not significantly change with a change in its price.