Syndicated Lending

The Federal Republic of Brazil acquired much of its debt in the late 1970s and early 1980s through large international syndicated loans. By 1980 the Brazilian government had borrowed so frequently from the markets that what was known as "Brazilian pricing" became standard for many such syndicated credits:

Principal US$500,000,000

Maturity 8.0 years

Base Interest Rate LIBOR

Spread 2 %

Syndication fees 1 %

a) What would be the actual loan proceeds from such a syndicated credit?

b) What would the effective annual cost of funds (in percentage form) be for the first year if the market LIBOR rate for the first year is 8%?