Many loans to corporations are quoted today at small risk premiums and profit margins over the...

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Many loans to corporations are quoted today at small riskpremiums and profit margins over the London Interbank Offered rate(LIBOR). Englewood Bank has a $25 million loan request for workingcapital to fund accounts receivable and inventory from one of itslargest customers, APEX Exports. The bank offers its customer afloating-rate loan for 90 days with an interest rate equal to LIBORon 30-day Euro deposits (currently trading at a rate of 4 percent)plus a one-quarter percentage point markup over LIBOR.
(1) What loan rate would the bank offer?
(2) If APEX wants the loan at a rate of 1.014 times LIBOR andthe bank agrees to this loan request, what interest rate willattach to the loan if it is made today?
3) What does this customer’s request reveal about the borrowingfirm’s interest rate forecast for the next 90 days?
Hint: Use the price leadership model. Show your works.

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1 What loan rate would the bank offer The loan rate offered by the bank LIBOR on 30day Euro deposits currently trading at a rate of 4 percent plus a onequarter percentage point markup over See Answer

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Many loans to corporations are quoted today at small riskpremiums and profit margins over the London Interbank Offered rate(LIBOR). Englewood Bank has a $25 million loan request for workingcapital to fund accounts receivable and inventory from one of itslargest customers, APEX Exports. The bank offers its customer afloating-rate loan for 90 days with an interest rate equal to LIBORon 30-day Euro deposits (currently trading at a rate of 4 percent)plus a one-quarter percentage point markup over LIBOR.(1) What loan rate would the bank offer?(2) If APEX wants the loan at a rate of 1.014 times LIBOR andthe bank agrees to this loan request, what interest rate willattach to the loan if it is made today?3) What does this customer’s request reveal about the borrowingfirm’s interest rate forecast for the next 90 days?Hint: Use the price leadership model. Show your works.