On 1 3 May, General Electric Inc. concluded that they going to start ne R &D project
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On 1 3 May, General Electric Inc. concluded that they going to start ne R &D project for which they need $4,000,000 through borrowings at LIBOR rate with incremental of 4 percent on I July. The 6-months LIBOR on 13 May i' 6.5 percent. The nature of loan is pure discount and the payment of interest and principle is at the end or the period. For hedging against LIBOR fluctuation. The company developed the hedging strategy through call options with strike price of 5.15 that expire with loan that is of 6-months. The premium on call option is $7,000. Develop the range Of effective ceiling rate on this discount loan which results due to strategy adopted by General Electric Inc.?
Related Book For
Introduction to Derivatives and Risk Management
ISBN: 978-1305104969
10th edition
Authors: Don M. Chance
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