What amount of interest rebate will the bank receive

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Reference no: EM131067456

The American Commerce Bank (ACB) lends $1.25 million to Unity International Company for 3 months. The bank usually changes a rate of LIBOR plus 3 percent to companies with similar credit ratings. However, since the bank's economists are of the view that short-term interest rates may fall in the near future, ACB decided to lend money to Unity at a discounted rate of LIBOR plus 2 percent in return for an interest-rate floor of 4.25 percent. What amount of interest rebate will the bank receive, if LIBOR drops to 1.25 percent from 2.25 percent immediately after lending the amount?

Can you please put down the calculation to solve this problem?

Reference no: EM131067456

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