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Financing foreign operations - syndicated loan

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Citibank offers to syndicate a Eurodollar credit for the government of Poland with the following terms:

Principal U.S.$1,000,000,000
Maturity 7 years
Interest rate LIBOR + 1.5 percent, reset every six months
Syndication fee 1.75 percent

a. What are the net proceeds to Poland from this syndicated loan?
b. Assuming that six-month LIBOR is currently at 6.35 percent, what is the effective annual interest cost to Poland for the first six months of this loan?

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Solution Preview

a. Syndication fee is the money paid to the bank for arranging the loan. In this case the loan amount is 1,000,000,000. The free is 1.75% of the loan amount and comes to 17,500,000. Since this amount ...

Solution Summary

The solution explains how to calculate the net proceeds of a syndicated loan in eurodollars and the effective cost of the loan