Exhibit 23.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An international investment firm buys an interest rate cap that pays the difference between LIBOR and 6% if LIBOR exceeds 6%. Current LIBOR is 5%. The amount of the option is $1,500,000, and the settlement is every 3 months. Assume a 360 day year.
-Refer to Exhibit 23.8. Find the payoff if LIBOR closes at 4.7%.
A)-$45,000
B)-$11,250
C)$0
D)$11,250
E)$45,000

Question

Quizplus · Accepted Answer

Since LIBOR closed at 4.7%, which is below the cap rate of 6%, the option does not pay off and the payoff is zero.

Exhibit 23.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)