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Total interest on six-month loan

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Reference no: EM132966928

Xiamen Bank has recently granted a loan of $2 million to Malik Farms at prime plus 0.5 percent for six months. In return for granting Malik Farms an interest-rate cap of 6.5 percent on its loan, this thrift has received from this customer a floor rate on the loan of 5 percent. Suppose that, as the loan is about to start, the prime rate declines to 4.25 percent and remains there for the duration of the loan. How much (in dollars) will Malik Farms have to pay in total interest on this six-month loan? How much in interest rebates will Malik Farms have to pay due to the fall in the prime rate?

Total Interest Owed = Amount Borrowed X Interest Rate Charged X Number of Months

Reference no: EM132966928

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