Exhibit 23.1
Use the Information Below for the Following Problem(S)
A company buys an interest rate cap that pays the difference between LIBOR and 8% if LIBOR exceeds 8%. Current LIBOR is 7%. The amount of the option is $2,500,000, and the settlement is every 6 months. Assume a 360 day year.
-Refer to Exhibit 23.1.Find the payoff if LIBOR closes at 8.2%.
A) $0.00
B) $25,000.00
C) $50,000.00
D) -$25,000.00
E) -$50,000.00

Question

Quizplus · Accepted Answer

$$\begin{aligned}
\text { Payaff } & = \$ 2,500,000 \times ( 180 / 360 ) \times \operatorname { Max } ( 0,0.082 - 0.08 ) \
& = 2,500,000 \times 0.5 \times 0.02 = \$ 25,000.00
\end{aligned}$$

Exhibit 23.1 Use the Information Below for the Following Problem(S)