TABLE 9.1
Use the information for Polaris Corporation to answer following question(s).
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%
-Refer to Table 9.1. Polaris could have locked in the future interest rate payments by using
A)a forward rate agreement.
B)an interest rate future.
C)an interest rate swap.
D)any of the above

Question

TABLE 9.1
Use the information for Polaris Corporation to answer following question(s).
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00% 
-Refer to Table 9.1. Polaris could have locked in the future interest rate payments by using
A)a forward rate agreement. 
B)an interest rate future. 
C)an interest rate swap. 
D)any of the above

Quizplus · Accepted Answer

All the options (forward rate agreement, interest rate future, and interest rate swap) are financial instruments that can be used to hedge against future interest rate fluctuations.

TABLE 9.1 Use the Information for Polaris Corporation to Answer Following Question(s)