Suppose You Have a Floating Rate Loan Tied to 90-Day

question 39

Multiple Choice

Suppose you have a floating rate loan tied to 90-day LIBOR and have hedged the interest rate risk with an interest rate cap.The effective annual rate actually paid on the loan with the cap is found using a methodology equivalent to

• A)computing the Black-Scholes-Merton option call price
• B)computing the net present value
• C)computing the internal rate of return
• D)computing the Black commodity option call price
• E)computing the WACC

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