If a Firm Sells a Floor at 6% This Will

question 15

Multiple Choice

If a firm sells a floor at 6% this will:

• A) will pay the holder the LIBOR interest below the 6%.
• B) pay the firm 6% on their purchase.
• C) will pay the holder the LIBOR interest above 6%.
• D) limit the amount of borrowing to 6% of assets.

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Definitions:

Liability Account

An accounting record that captures the amounts owed to others, representing claims against a company’s assets.

Owner's Equity

The portion of a company's assets that belongs to the owners after all liabilities have been subtracted.

Net Income

The total earnings of a company after deducting all expenses from revenues, representing the profit.

Owner's Drawings

The amount of money taken out from the business by the owner(s) for personal use.