Final answer:
In total, ABC International will pay $118,000 over the six-month period for the Eurodollar loan, with $61,500 paid in the first three months and $56,500 paid in the second three months, after applying the respective LIBOR rates for each period along with the lending margin.
Step-by-step explanation:
To calculate the total interest ABC International will pay to Barclays over the six-month period, we need to consider the interest rates for each three-month period separately, and then sum them up.
For the first three months, the interest rate is 5.5% (LIBOR) + 0.65% (lending margin), which equals 6.15% on an annual basis. However, since interest is only for three months, we divide this by 4 (as there are four three-month periods in a year). So the interest for the first quarter is 6.15% / 4 = 1.5375% of $4,000,000.
For the second three months, the interest rate is 5.0% (LIBOR) + 0.65% (lending margin) = 5.65%. Again, we need this on a three-month basis, so we divide it by 4 to get 5.65% / 4 = 1.4125% interest for the second quarter.
Now we calculate the interest payments:
- First quarter: $4,000,000 * 1.5375% = $61,500
- Second quarter: $4,000,000 * 1.4125% = $56,500
Adding both quarters together gives us the total interest paid over the six months:
$61,500 (first quarter) + $56,500 (second quarter) = $118,000
Therefore, the correct answer is C. $118,000.