2 X Effective Annual Rate Questions For You effective, 180, principal, current

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QBank #93111:

In 60 days, a bank plans to lend $10 Million for 180 days. The lending rate is LIBOR + 200 bps. The current LIBOR is 4.5%. The bank buys an interest-rate put that matures in 60 days with a notional principal of $10 Million, days in underlying of 180 days, and a strike rate of 4.3%. The put premium is $4,000. What is the effective annual rate of the loan if at expiration LIBOR = 4.1%?

a) 6.48%
b) 6.19%
c) 6.40%

2011 Schweser Practice Exam 1 Book 1 #20.3:

In 110 days, the manager of Fund B plans to borrow $50 Million for 180 days. at a rate of 180-day LIBOR + 150 bps. The current LIBOR is 6.5%. The manager buys an interest-rate call on 180-day LIBOR that matures in 110 days with a premium of $120,000 and an exercise rate of 6%. What is the effective annual rate of the loan if at expiration LIBOR = 7.3%?

a) 7.30%
b) 8.29%
c) 8.80%

Chuckrox

1 C

2 B