Question: Homework Question 5 - Due in week 12 (8 October 2021 @ 12 PM) Westfarmers Ltd (WES) is considering a borrowing in the next

Homework Question 5 - Due in week 12 (8 October 2021 @

Homework Question 5 - Due in week 12 (8 October 2021 @ 12 PM) Westfarmers Ltd (WES) is considering a borrowing in the next 3 months and is concerned about possible increase in market interest rate. WES decides to enter into an interest rate cap to protect its borrowing. It pays a premium of 0.35 per cent for an interest rate cap at 8.50 per cent to protect its borrowings. a. Draw a pay-off table and diagram for the interest rate cap at expiration b. If the market rate at expiry date is 8.50%, what is the effective rate of the borrowing for Westfarmers Ltd (WES)?

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