An Interest Rate Cap Is

question 2

Multiple Choice

An interest rate cap is:

• A) a European call option on the spot interest rate
• B) an American call option on the spot interest rate
• C) a portfolio of European call options on the spot interest rate
• D) a portfolio of American call options on the spot interest rate
• E) a portfolio of European put options on the spot interest rate

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Definitions:

Carrying Amount

Carrying amount, also known as book value, is the value recorded on the balance sheet for a particular asset, reflecting its original cost minus any depreciation, amortization, or impairment costs.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against an asset over its useful life.

Impairment Loss

An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount, indicating the asset is not expected to generate future benefits worth its recorded value.

Accumulated Depreciation

The total amount of depreciation expense allocated to an asset since it was put into use.