Question

The Bensington Glass Company entered into a loan agreement with the​ firm's bank to finance the​ firm's working capital. The loan called for a floating rate that was

26

basis points

​(0.26

​percent) over an index based on LIBOR. In​ addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of

2.242.24

percent and a minimum of

1.75

percent. Calculate the rate of interest for weeks 2 through 10.

Date	LIBOR
Week 1	1.91​%
Week 2	1.63​%
Week 3	1.49​%
Week 4	1.31​%
Week 5	1.63​%
Week 6	1.64​%
Week 7	1.69​%
Week 8	1.88​%
Week 9	1.94​%

Answer 1

Week (A)	LIBOR of previous week (B)	(B) + 0.26% (C)	RATE = Lower of 1.75% or (C), or Higher of 2.24% or (C)
2	1.91%	2.17%	2.17%
3	1.63%	1.89%	1.89%
4	1.49%	1.75%	1.75%
5	1.31%	1.57%	1.75%
6	1.63%	1.89%	1.89%
7	1.64%	1.90%	1.90%
8	1.69%	1.95%	1.95%
9	1.88%	2.14%	2.14%
10	1.94%	2.20%	2.20%

Additional Note for your academic interest: The common mistake students make is, using week 2 LIBOR for week 2, rather than week 1's. Question clearly says "index of previous week".

Feel free to ask for clarifications. If this helps, kindly leave a thumbs up.