23-112 What Should Be the Price of a Three-Year 6

question 32

Multiple Choice

23-112 What should be the price of a three-year 6 percent floor if the current (spot) rates are also 6 percent? The face value is $5,000,000,and time periods are zero,one,and two.

• A)$25,000.
• B)$21,598.
• C)$22,462.
• D)$44,460.
• E)$66,030.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production volume.

Contribution Margin Ratio

The ratio of contribution margin (sales minus variable costs) to sales revenue, indicating the percentage of each sales dollar available to cover fixed costs and profit.

Operating Income

Operating income, similar to income from operations, is the profit earned from a firm's normal core business operations.

Variable Costs

Costs that vary directly with the level of production or sales activity.