Answer: $85,500
Step-by-step explanation:
From the question, we are told XYZ Corporation takes out a $1 million loan and the interest on the loan is paid semiannually.
We are also told that the six-month interest rate is six-month LIBOR 80 basis points, with a cap at 9.25%. Assume that LIBOR is at 8.5% on March 4, 1999, and 7.75% on September 4, 1999.
The second interest payments on the loan will be:
The interest rate will be:
Interest rate = LIBOR + 80bps
= 7.75 + 0.8
= 8.55%
Interest paid in the second period
= $1,000,000 × 8.55%
= $1,000,000 × 0.0855
= $85,500
Note that there is no need for using the cap since the interest didn't exceed 9.25%