Acme Insurance Company has purchased a five-year bond whose interest rate floats with LIBOR. Specifically, the interest rate in a given year is equal to LIBOR plus 200 basis points. At the same time the insurance company purchases this bond, it enters into a floor agreement with Goldman Sachs in which the notional principal a mount is \(\$ 35 \mathrm{mil}\) lion with a strike rate of \(6 \%\). The premium Acme Insurance Company agrees to pay Goldman Sachs each year is \(\$ 300,000\).

a. Suppose at the time that it is necessary to determine if a payment must be made by Goldman Sachs, LIBOR is \(9 \%\). How much must Goldman Sachs pay Acme Insurance Company?

b. Suppose at the time that it is necessary to determine if a payment must be made by Goldman Sachs, LIBOR is 3%. How much must Goldman Sachs pay Acme Insurance Company?

c. What is the minimum interest rate that Acme Insurance Company has locked in each year for the next five years by entering into this floor agreement and buying the five-year bond, ignoring the premium that Acme Insurance Company must make each year?