Lizard National Bank Purchases a Three-Year Interest Rate Cap for a Fee

question 14

Multiple Choice

Lizard National Bank purchases a three-year interest rate cap for a fee of 2 percent of notional principal valued at $50 million, with an interest rate ceiling of 11 percent and LIBOR as theindex representing the market interest rate. LIBOR is 9 percent, 12 percent, and 13 percent at the end of each of the next three years, respectively. The total payments received (or paid) by Lizard, including the initial fee, are $____.

• A) 500,000
• B) -500,000
• C) -1,500,000
• D) 1,500,000
• E) none of the above

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Definitions:

Staying Asleep

The ability to remain asleep for an adequate period of time to achieve restful and restorative sleep.

Falling Asleep

The shift from being awake to sleeping, a regular period of relaxation for both the body and mind.

Insomnia

Difficulty in falling asleep or staying asleep, even when a person has the chance to do so.

Sleep Apnea

A sleep disorder characterized by pauses in breathing or instances of shallow breathing during sleep, leading to disrupted sleep quality and potential health complications.