A Firm with a Variable-Rate Loan Wants to Protect Itself

question 11

Multiple Choice

A firm with a variable-rate loan wants to protect itself solely from increases in interest rates. Which one of the following would be of most interest to this firm?

• A) Create an interest rate collar
• B) Create an interest rate floor
• C) Buy a put option on interest rates
• D) Enter a currency futures contract
• E) Buy a put option on a bond

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Definitions:

PHStat

An Excel add-in designed to perform statistical analysis, providing tools for various statistical tests and data analysis methods.

Capital Investments

Expenditures made by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Criteria

Standards or principles by which something can be judged or decided, often used in the process of evaluation, decision-making, and establishing benchmarks for performance.

Uncertain Information

Information that is not known with certainty, often due to variability or incomplete knowledge.