Question: A Queens-based exporter borrows $15 million for four years to fund expansion CAPX. The risk is that interest rates rise & debt service increases. To

A Queens-based exporter borrows $15 million for four years to fund expansion CAPX. The risk is that interest rates rise & debt service increases. To hedge against rising rates, a four year interest rate cap is purchased. The reference rate is six month Libor, the premium is 190 basis points & the strike price is 4.50%. If 1Y rates rise to 6.25% during the first period, what is the net cost to the company for the period?

a.$373,125

b.$622,500

c.$366,000

d.$491,250

e.$241,875

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