Answer (B) is correct . A basis point is one-hundredth of 1%. Thus, the rate on the term loan is 8% [6% treasury bill rate + 200 basis points (2%)]. The first quarterly payment consists of principal of $1,000,000 and interest of $400,000 [($20,000,000 × 8%) × (3 ÷ 12 months)], a total of $1,400,000. The second quarterly payment consists of principal of $1,000,000 and interest of $380,000 [($20,000,000 – $1,000,000) × 8% × (3 ÷ 12?months)], a total of $1,380,000. The total payments in the second half of the year are therefore $2,780,000 ($1,400,000 + $1,380,000).
Answer (A) is incorrect because The amount of $1,800,000 results from failing to include the second principal payment and from calculating the second interest payment on the full $20,000,000.
Answer (C) is incorrect because The amount of $2,800,000 results from calculating the second interest payment on the full $20,000,000.
Answer (D) is incorrect because The amount of $3,170,000 results from using a 12% interest rate.
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