Assume a Binomial Pricing Model Where There Is an Equal

question 109

Multiple Choice

Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1 percent per year.
-What should be the net price of a $5,000,000 collar if the bank purchases a three-year 6 percent cap and sells a 5 percent floor, if the current (spot) rates are 6 percent?

• A)The bank will receive net $2,010.
• B)The bank will receive net $31,651.
• C)The bank will pay net $31,651.
• D)The bank will pay net $2,010.
• E)price = $0

Appreciate the demographic variations in poverty rates.

Analyze employment dynamics within low-income families.

Recognize offshoring and its effect on a country's economy.

Evaluate the impact of parental work schedules on family dynamics.

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Definitions:

Elastic Supply

Describes a situation where the quantity supplied of a good changes significantly when its price changes.

Tax Burden

The measure of the financial charge or impact of taxes on an individual or a corporation.

Excise Tax

A tax on specific goods or services, such as tobacco, alcohol, and gasoline, designed to raise revenue and/or discourage consumption of certain products.

Equilibrium

A state in which the conflicting forces of demand and supply are in balance. When a market is in equilibrium, the decisions of consumers and producers are brought into harmony with one another, and the quantity demanded will equal the quantity supplied.