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Which of the Following Statements Is Correct

Question 2

Multiple Choice

Which of the following statements is correct?


A) The buyer of an interest rate floor earns an amount on each payment date that is equal to the floor rate (or the strike rate) on the contract times the notional.
B) The buyer of an interest rate floor earns an amount on each payment date that has a minimum value equal to the floor rate (or the strike rate) on the contract times the notional.
C) The buyer of an interest rate floor earns profits when interest rates increase,so it is contract that is bullish on interest rates.
D) If the buyer of an interest rate floor issues a floating rate bond that pays bbalibor,then its borrowing cost equals the floor rate (or the strike rate) times the notional.
E) If the buyer of an interest rate floor purchases a floating rate bond that earns bbalibor,then it earns at least the floor rate (or the strike rate) times the notional on each payment date.

Correct Answer:

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