Exhibit 23.8 Use the Information Below for the Following Problem(S)

question 67

Multiple Choice

Exhibit 23.8
Use the Information Below for the Following Problem(S)
An international investment firm buys an interest rate cap that pays the difference between LIBOR and 6% if LIBOR exceeds 6%. Current LIBOR is 5%. The amount of the option is $1,500,000, and the settlement is every 3 months. Assume a 360 day year.
-Refer to Exhibit 23.8.Find the payoff if LIBOR closes at 4.7%.

• A) -$45,000
• B) -$11,250
• C) $0
• D) $11,250
• E) $45,000

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Definitions:

Quantifier

A logical symbol or word used in mathematics and logic to specify the quantity of specimens in the domain of discourse.

Compound

A substance made from two or more elements chemically bonded together.

Atomic

Pertaining to the smallest component of an element that maintains the chemical properties of that element.

Truth-functional Compound

A compound statement whose truth value is determined by the truth values of its constituent statements through specific logical operations.