If a Firm Creates an Interest Rate Collar on a Variable

question 63

Multiple Choice

If a firm creates an interest rate collar on a variable rate loan, then the rate the firm pays will always:

• A) remain constant at the average of the floor and cap rates.
• B) remain constant at the floor rate.
• C) remain constant at the cap rate.
• D) be higher than, or equal to, the cap but lower than, or equal to, the floor.
• E) be higher than, or equal to, the floor but lower than, or equal to, the cap.