Question

4. XYZ Ltd. just issued 2,000 FRN's (floating rate notes), each with the face value of $20,000 (US), maturity of 6 years, interest payments per annum and interest rate, i, is set as: i = Beginning of the period LIBOR + 1.0% Suppose interest rate reset-period is 3 months. LIBOR is 1.5% per annum today and it is expected to be 2%, 2.5% , and 3.0 % per annum at the beginning of quarter 2, quarter 3, and quarter 4 respectively. Find interest payment per FRN at the end of year 1

Answer 1

Interest payment per FRN for Year 1= $650 as shown below:

A. D Cell Reference Values Formula 2 Face value of FRN (FV) $20,000 Given 3 Number of FRNS issued Given 2,000 4 Interest reset frequency Quarterly Given 5 Benchmark rate Given LIBOR 6 Reset terms Given Beginning LIBOR+1% 7 LIBOR at the beginning of Q1 Given 1.50% 8 LIBOR at the beginning of Q2 Given 2% LIBOR at the beginning of Q3 2.50% 9 Given 10 LIBOR at the beginning of Q4 Given 3% 11 Interest rate for Q1 LIBOR +1% D7+1% 2.50% 12 Interest rate for Q2 LIBOR +1% D8+1% 3.00% 13 Interest rate for Q3 LIBOR +1% D9+1% 3.50% 14 Interest rate for Q4 4,00% LIBOR +1% D9+1% FV*Int. rate/4 D2*D11/4 $125 15 Interest per FRN for Q1 FV Int. rate/4 D2*D12/4 $150 16 Interest per FRN for Q2 FV Int. rate/4 D2 D13/4 D2 D14/4 SUM of Int. for 4 Qrts SUM(D15: D18) $175 $200 $650 17 Interest per FRN for Q3 FV Int. rate/4 18 Interest per FRN for Q4 19 Interest per FRN for year 1