An FI has purchased a $201 million cap of 8 percent at a premium of 0.70 percent of face value. A $201 million floor of 4.1 percent is also available at a premium of .75 percent of face value. a. If interest rates rise to 9 percent, what is the amount received by the FI? What are the net savings after deducting the premium? b. If the FI also purchases a floor, what are the net savings if interest rates rise to 10 percent? What are the net savings if interest rate fall to 3.1 percent? (Negative amounts should be indicated by a minus sign.) c. If, instead, the FI sells (writes) the floor, what are the net savings if interest rates rise to 10 percent? What if they fall to 3.1 percent? (Negative amounts should be indicated by a minus sign.) a. Amount received Net savings b. Net savings if interest rates rise to 10 percent Net savings if interest rates fall to 3.1 percent c. Net savings if interest rates rise to 10 percent Net savings if they fall to 3.1 percent
An FI has purchased a $201 million cap of 8 percent at a premium of 0.70 percent of face value. A $201 million floor of 4.1 percent is also available at a premium of .75 percent of face value. a. If interest rates rise to 9 percent, what is the amount received by the FI? What are the net savings after deducting the premium? b. If the FI also purchases a floor, what are the net savings if interest rates rise to 10 percent? What are the net savings if interest rate fall to 3.1 percent? (Negative amounts should be indicated by a minus sign.) c. If, instead, the FI sells (writes) the floor, what are the net savings if interest rates rise to 10 percent? What if they fall to 3.1 percent? (Negative amounts should be indicated by a minus sign.) a. Amount received Net savings b. Net savings if interest rates rise to 10 percent Net savings if interest rates fall to 3.1 percent c. Net savings if interest rates rise to 10 percent Net savings if they fall to 3.1 percent
Chapter13: Capital, Interest, Entrepreneurship, And Corporate Finance
Section: Chapter Questions
Problem 4.8P
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