Q1. Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00% Loan Interest Rates Year 0 Year 1 Year 2 LIBOR (Floating) 4.00% 4.00% 4.00% Spread (Fixed) 1.00% 1.00% 1.00% Total Interest Payable 5.00% 5.00% 5.00% Interest Cash Flows on Loan LIBOR (Floating) ($200,000) ($200,000) Spread (Fixed) ($50,000) ($50,000) Total Interest ($250,000) ($250,000) Loan Proceeds (Repayment) $4,900,000 ($5,000,000) Total Loan Cash Flows $4,900,000 ($250,000) ($5,250,000) If the LIBOR rate falls to 3.00% after the first year what will be the AIC for Polaris for the entire loan? a. 4.00% b. 4.50% c. 5.25% d. 5.60%