A Bank Buys an Interest Rate Floor in Conjunction with a Loan

question 42

Multiple Choice

A bank buys an interest rate floor in conjunction with a loan it holds that will make four semiannual payments starting six months from now.The floor has a strike of 9 percent.LIBOR at the beginning of the four payment periods is 10,11,8,and 8.6 percent.On which dates will the floor writer make a payment to the bank?

• A)now and in 24 months
• B)in 18 and 24 months
• C)in 12 and 18 months
• D)in 6,12,18 and 24 months
• E)none of the above

Recognize the efficiency outcomes of competitive markets.

Understand public goods and their characteristics.

Identify the role of government in market economies.

Analyze supply-side and demand-side market failures.

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