The Writer of an Interest Rate Cap

question 12

Multiple Choice

The writer of an interest rate cap:

• A) has the obligation to sell the underlying bond at a fixed price
• B) has the obligation to buy the underlying bond at a fixed price
• C) has the obligation to pay (the spot rate minus the strike rate)times the notional
• D) has the obligation to pay (the spot rate minus the strike rate)times the notional in case it's a positive number
• E) has the obligation to pay (the strike rate minus the spot rate)times the notional in case it's a positive number

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Definitions:

Orange Juice

A beverage made by squeezing or pressing the liquid from orange fruit.

Vodka

A clear distilled alcoholic beverage of Russian origin made primarily from water and ethanol, sometimes with traces of impurities and flavorings.

Investments

The act of allocating resources with the expectation of generating an income or profit, often through acquiring assets like stocks, bonds, or real estate.

Business

Any organization or entrepreneurial entity engaged in commercial, professional, or industrial activities.