#7

PetrolIbrico, a European gascompany, is borrowing $550,000,000 via a syndicated eurocredit for six years at 90 basis points over LIBOR. LIBOR for the loan will be reset every six months. The funds will be provided by a syndicate of eight leading investmentbankers, which will chargeup-front fees totaling 1.1% of the principal amount. What is the effective interest cost for the first year if the annual LIBOR is 3.90% during the first six months and 4.10% during the second six months.

The effective interest cost for the first year is ? %. (Round to two decimalplaces.)