An FI has purchased a $ 200 million cap of 9 percent at a premium of 0.65
Question:
a. If interest rates rise to 10 percent, what is the amount received by the FI? What are the net savings after deducting the premium?
b. If the FI also purchases a floor, what are the net savings if interest rates rise to 11 percent? What are the net savings if interest rates fall to 3 percent?
c. If, instead, the FI sells (writes) the floor, what are the net savings if interest rates rise to 11 percent? What if they fall to 3 percent?
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Related Book For
Financial Markets and Institutions
ISBN: 978-0077861667
6th edition
Authors: Anthony Saunders, Marcia Cornett
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