USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 73

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An international investment firm buys an interest rate swap that pays the difference between LIBOR and 6 percent if LIBOR exceeds 6 percent. Current LIBOR is 5 percent. The amount of the option is $1,500,000, and the settlement is every three months. Assume a 360-day year.
-Refer to Exhibit 15.20. Find the payoff if LIBOR closes at 4.7 percent.

• A) -$45,000
• B) -$11,250
• C) $0
• D) $11,250
• E) $45,000

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Definitions:

Mark Up

The percentage added to the cost price of goods to cover overhead and profit.

Direct Labor-Hours

This refers to the total number of hours worked by employees who are directly involved in the production of goods or services.

Machine-Hours

A measure of production activity that quantifies the total hours machines are operated in the manufacturing process.

Direct Labor Cost

The wages or salaries directly attributable to the production of goods or services, excluding indirect costs such as supervision and maintenance.