Which of the Following Statements Is Correct

question 23

Multiple Choice

Which of the following statements is correct?

• A) The buyer of an interest rate floor earns an amount on each payment date that is equal to the floor rate (or the strike rate)on the contract times the notional.
• B) The buyer of an interest rate floor earns an amount on each payment date that has a minimum value equal to the floor rate (or the strike rate)on the contract times the notional.
• C) The buyer of an interest rate floor earns profits when interest rates increase,so it is contract that is bullish on interest rates.
• D) If the buyer of an interest rate floor issues a floating rate bond that pays bbalibor,then its borrowing cost equals the floor rate (or the strike rate)times the notional.
• E) If the buyer of an interest rate floor purchases a floating rate bond that earns bbalibor,then it earns at least the floor rate (or the strike rate)times the notional on each payment date.

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Definitions:

Statement of Cash Flows

An accounting report detailing the impact of variations in balance sheet accounts and earnings on cash and cash equivalents, categorizing the analysis among operating, investing, and financing activities.

Nonoperating Activities

Various revenues, expenses, gains, and losses that are unrelated to a company’s main line of operations.

Statement of Cash Flows

A financial report that details the sources and uses of a company's cash during a specific period, showing operations, investing, and financing activities.

Cash Receipts

The money received by a business during a specific period, including amounts received from customers, interest, and dividends.