Suppose that Florida Bank has recently granted a loan of $2 million to Oyster Farms at LIBOR plus 0.5 percent for six months. In return for granting Oyster Farms an interestrate cap of 6.5 percent on its loan, this bank has received from this customer a floor rate on the loan of 5 percent. Suppose that, as the loan is about to start, LIBOR declines to 4.25 percent and remains there for the duration of the loan. How much (in dollars) will Oyster Farms have to pay in total interest on this six-month loan with floor and without floor? How much in interest rebates will Oyster Farms have to pay due to the fall in LIBOR?

Onsider the following subscription behavior information from genie, a web site that provides tools for constructing a family tree (ancestor search). subscriptions cost $9.99 per month, but you are charged for the entire year at the time of purchase. there is a one-year minimum term when you sign up for the service. once purchased, subscriptions are set to renew automatically unless the subscriber cancels them. when a membership renews, it renews for a one-year term and again you are charged for the entire year. there are no variable costs associated with providing this service to an individual customer, but genie does engage in customer relationship activities that they believe will increase customer retention. these customer relationship activities cost genie about $10 per year per customer. based on a sample of 1000 customers that joined genie five years ago, near the time when the company was founded, they were able to determine how many of those customers remained subscribers in the second year, third year etc. based on this information, genie calculated the average annual retention rate to be 20%. genie uses an annual discount rate of 8%. a. last year, genie spent $10,000 placing advertisements on google. genie management believes that these advertisements were responsible for about 300 new subscribers. would you recommend to genie management that they purchase more google ads? b. suppose a newly-introduced loyalty program increases the number of customers that remained to 30%. does this new data change your answer to 9.a? c. do you have any hesitations or concerns about making recommendations to management based on your above estimate of customer lifetime value?