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Which of the Following Is False

Question 41

Multiple Choice

Which of the following is false?


A) An interest rate floor is an agreement whereby the seller of the floor agrees, for a fee, to pay the buyer of the floor when the actual interest rate falls below the strike rate.
B) With either an interest rate floor, the amount of compensation is determined by the difference between the actual interest rate and the strike rate multiplied by the principal amount of the transaction.
C) With an interest rate cap, the amount of compensation is determined by the difference between the actual interest rate and the strike rate multiplied by the principal amount of the transaction.
D) An interest rate collar is created when one simultaneously sells an interest rate cap and buys an interest rate floor.

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