Green Garden Restaurants borrowed $10,000,000 from Big Bad Bank on July 1 last year for a term of two years. It agreed to pay 1-month LIBOR plus 2%. Interest is paid at the end of each month. At the beginning of July last year 1-month LIBOR was 1.25%. At the beginning of July this year 1-month LIBOR was 1.5%. Suppose 1-month LIBOR will be 2% at the end of this month. What is the interest rate that Green Garden will need to pay at the end of this month?
a) 1.25%
b) 1.5%
c) 2%
d) 3.25%
e) 3.5%
f) 4%
Answer: e) 3.5%
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