Consider a Five-Year Floating Rate Loan with Principal of $10

question 7

Multiple Choice

Consider a five-year floating rate loan with principal of $10 million and quarterly payments based on the three-month bbalibor rate.Suppose the bbalibor rates are 0.01 for the first three years and 0.02 for the last two years.What is the value of the floating rate loan when it is issued?

• A) $9.27 million
• B) $9.85 million
• C) $9.90 million
• D) $10 million
• E) $10.55 million

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Definitions:

Femoral Vein

A major vein located in the thigh that carries blood from the lower extremities back to the heart.

Thigh

The part of the human leg between the hip and the knee.

Pelvis

The lower part of the torso, enclosed by the pelvic bones and containing the reproductive organs and part of the digestive tract.

Superior Vena Cava

Large but short vein that carries deoxygenated blood from the upper half of the body to the heart’s right atrium.