Leando Enterprises has a variable rate loan and wants to lock in the rate so that the ﬁrm is in essence paying no more than 8.5% nor less than 7.5%. To do this, the ﬁrm needs to ____ a call and
____ a put option on interest rates.

Question

Quizplus · Accepted Answer

Leando Enterprises needs to protect themselves from interest rate increases by buying a call option. Buying a put option will protect them from interest rate decreases. Therefore, the best choice is to buy a call option and sell a put option, which is represented by choice B.

Leando Enterprises Has a Variable Rate Loan and Wants to Lock