Calculate the effective borrowing cost from loan

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On 1st January 20X1, ATM Ltd borrows USD from a London bank. The loan is a 2-year floating interest rate loan with the principal is $300 million. The Interest is paid every 6 months at the rate of $-LIBOR+1.50% pa. The principal is repaid all at once at the loan maturity (i.e., an interest-only loan). To complete the loan application, the London bank also charges ATM with an upfront fee of 1.0% of the total loan proceed. The following table shows movements of $-LIBOR with various tenors over the coming 2 years. All figures are reported in % pa. Show cash flows from this loan to ATM. Calculate the effective borrowing cost from this loan (show the result in both % per 6 month and % pa.)? Keep at least 6 decimal points (i.e., 0.054812 or 5.4812%) in the calculation.

Tenor

Date Observed

1st Jan X1

1st Jul X1

1st Jan X2

1st Jul X2

1st Jan X3

3-Month

2.25

2.40

2.20

2.10

2.35

6-Month

2.50

2.65

2.45

2.35

2.60

12-Month

2.75

2.90

2.70

2.60

2.85

Reference no: EM133059693

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