KKR Issues a $10 Million 18-Month Floating Rate Note Priced

question 106

Multiple Choice

KKR issues a $10 million 18-month floating rate note priced at LIBOR plus 400 basis points.What is KKR's interest rate risk exposure and how can it be hedged?

• A)KKR is exposed to interest rate increases; short hedge by buying put options.
• B)KKR is exposed to interest rate increases; long hedge by buying call options.
• C)KKR is exposed to interest rate decreases; long hedge by buying call options.
• D)KKR is exposed to interest rate decreases; short hedge by buying put options.
• E)KKR is exposed to interest rate increases; short hedge by buying call options.

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Definitions:

Ion

Atom or molecule that carries a net charge.

Electron

Negatively charged subatomic particle.

Covalent Bonds

Chemical bonds formed by the sharing of electron pairs between atoms, contributing to the stability of molecules.

Molecular Oxygen

A diatomic molecule \(\text{O}_2\) that is essential for respiration in aerobic organisms and acts as the final electron acceptor in cellular respiration.