USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a quarterly interest expense based on the prevailing level of LIBOR at the beginning of each quarter. As is the bank's convention on all such loans, the amount of the interest payment would then be paid at the end of the quarterly cycle when the new rate for the next cycle is determined. You observe the following LIBOR yield curve in the cash market:

-Refer to Exhibit 15.3. What is the implied 90-day forward rate at the beginning of the second quarter?
A) 4.70%
B) 4.85%
C) 4.60%
D) 4.94%
E) 0%

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
As a relationship officer for a money-center commercial bank, one of your corporate accounts has just approached you about a one-year loan for $3,000,000. The customer would pay a quarterly interest expense based on the prevailing level of LIBOR at the beginning of each quarter. As is the bank's convention on all such loans, the amount of the interest payment would then be paid at the end of the quarterly cycle when the new rate for the next cycle is determined. You observe the following LIBOR yield curve in the cash market:
 
-Refer to Exhibit 15.3. What is the implied 90-day forward rate at the beginning of the second quarter?
A) 4.70% 
B) 4.85% 
C) 4.60% 
D) 4.94% 
E) 0%

Quizplus · Accepted Answer

The implied 90-day forward rate at the beginning of the second quarter can be calculated using the interest rate parity formula or a similar approach, which involves the current interest rates and the difference in interest rates over the periods in question. Without the specific details from Exhibit 15.3, such as interest rates for different periods, it's not possible to provide a step-by-step calculation. However, the correct answer is chosen based on the assumption that the necessary calculations or comparisons have been made according to the information provided in Exhibit 15.3.