Assume that you bought an interest rate cap on three- month LIBOR with a 2.50 percent strike
Question:
a. What will happen to the premium (value) on this cap if LIBOR rises to 3.16 percent? Explain.
b. What will happen to the premium (value) on this cap if LIBOR falls to 2.10 percent? Explain.
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a If LIBOR rises the premium will increase because the cap moves into the money At LI...View the full answer
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