An ARM has a margin of 2.25% and uses the 6-month LIBOR index. If the current 6-month LIBOR is 1.85%, but the loan documents specify using the LIBOR value from 45 days prior (which was 1.92%), what is the fully indexed rate?
Correct Answer
B) 4.17%
The loan documents specify using the LIBOR value from 45 days prior, which was 1.92%. The fully indexed rate is calculated as: 1.92% (specified index value) + 2.25% (margin) = 4.17%. Loan documents control which specific index value is used, often with a look-back period for administrative purposes.
Why This Is the Correct Answer
The loan documents specify using the LIBOR value from 45 days prior, which was 1.92%. The fully indexed rate is calculated as: 1.92% (specified index value) + 2.25% (margin) = 4.17%. Loan documents control which specific index value is used, often with a look-back period for administrative purposes.
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