Question

Petrol​ Ibérico. Petrol​ Ibérico, a European gas​ company, is borrowing $600,000,000 via a syndicated eurocredit for six years at 110basis points over LIBOR. LIBOR for the loan will be reset every six months. The funds will be provided by a syndicate of eight leading investment​ bankers, which will charge​ up-front fees totaling 1.4​% of the principal amount. What is the effective interest cost for the first year if the annual LIBOR is 3.50​% during the first six months and 3.70​% during the second six months.

The effective interest cost for the first year is ___​%.(Round to two decimal​ places.)

Answer 1

Loan sought	600,000,000
Upfront commission	1.40%
Upfront commission	8,400,000
Loan amount received	591,600,000
Interest rate	LIBOR + 1.10%
	First 6 months	next 6 months
LIBOR	3.50%	3.70%
Interest rate applied	4.600%	4.800%
Interest amount	600000000*4.60%*6/12	600000000*4.80%*6/12
Interest amount	13,800,000	14,400,000
Total Interest paid	28,200,000
Loan amount	591,600,000
Effective Interest rate=	28200000/591600000
Effective Interest rate=	4.77%