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could not have earned a profit on a net present value basis
unless interest rates exceeded their expected levels, but a much
smaller increase would have been sufficient to break even.
We reviewed historical data to assess the likelihood that
3-month LIBOR would have risen by the requisite amount for
Colgate to break even. The record includes published records of
market interest rates extending back to January 1984. There are
71 observations of 3-month LIBOR as of the first day of each
month between January 1984 and November 1989. Not one of the
71 monthly quotations is 300 basis points or more above the
quotations for the 1 to 6 previous months. Only three of the
quotations represent a level 200 basis points or more above any
quotations during the previous 6 months. There is no month for
which 3-month LIBOR was above 12.13 percent. It reached or
exceeded 11 percent in 6 months, all in mid-1984. In 30 months,
it fell within the range of 8 to 9.99 percent, and it fluctuated
between 10.31 and 8.56 percent during the first 11 months of
1989. The longest that 3-month LIBOR remained at or above
10 percent was 9 consecutive months in 1984. Thereafter, the
longest period was 2 consecutive months in early 1989. In the
late summer and early autumn of 1989, Colgate's treasury
department confidently expected that interest rates would follow
a downward trend for the foreseeable future.
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