USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
An international investment firm buys an interest rate swap that pays the difference between LIBOR and 6 percent if LIBOR exceeds 6 percent. Current LIBOR is 5 percent. The amount of the option is $1,500,000, and the settlement is every three months. Assume a 360-day year.
-Refer to Exhibit 15.20. Find the payoff if LIBOR closes at 4.7 percent.
A) -$45,000
B) -$11,250
C) $0
D) $11,250
E) $45,000

Question

Quizplus · Accepted Answer

Since LIBOR is below 6 percent, there is no payment made to the investment firm. The payoff is $0.