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Question
The American Commerce Bank (ACB) lends $1.5 million to Unity International Company for six months. The bank usually changes a rate of LIBOR plus 3 percent to companies with similar credit ratings. However, since the bank's economists are of the view that short-term interest rates may fall in the near future, ACB decided to lend money to Unity at a discounted rate of LIBOR plus 2 percent in return for an interest-rate floor of 4.5 percent. What amount of interest rebate will the bank receive, if LIBOR drops to 1.5 percent from 2.5 percent immediately after lending the amount?
A. $7,500
B. $20,000
C. $22,500
D. $17,500
E. Zero
Answer
This answer is hidden. It contains 1 characters.
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