Question
Botany Bay Corporation (BBC) of Australia seeks to borrow US$ 30 comma 000 comma 000 in the eurodollar market. Funding is needed for two years.
Botany Bay Corporation (BBC) of Australia seeks to borrow US$ 30 comma 000 comma 000 in the eurodollar market. Funding is needed for two years. Investigation leads to three possibilities. Compare the alternatives and make a recommendation.
1. Botany Bay could borrow the US$ 30,000,000 for two years at a fixed 5 % rate of interest.
2. Botany Bay could borrow the US$ 30,000,000 at LIBORplus1.500 %. LIBOR is currently 3.500 %, and the rate would be reset every six months.
3. Botany Bay could borrow the US$ 30,000,000 for one year only at 4.500 %. At the end of the first year, Botany Bay would have to negotiate for a new one-year loan.
For Alternative 1, the interest cost per year is $ blank for the first year and $ blank for the second year.
For Alternative 2, the interest cost per year is $ blank for the first year and $ blank for the second year.
For Alternative 3, the interest cost per year is $ blank for the first year and $ blank for the second year.
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