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:

ABC Costing

Activity-based costing; a method of allocating overhead and direct costs to specific products or activities based on actual consumption.

Cost Information

Data about the expenses involved in producing goods or services, used for budgeting, pricing, and financial analysis.

Cost Drivers

Factors that cause a change in the cost of an activity or production, such as labor hours or machine usage.

Facility-level Costs

Expenses that are not directly tied to a specific product or service but are necessary for the overall operation of a facility.