alleryStart learning →A floating-rate borrower buys a cap at 2.5%. What does this achieve?
ACounterparty risk removed
BPremium waived entirely
CInterest cost capped near 2.5%
DGuaranteed floor of 2.5%
Answer & Solution
Correct answer: C. Interest cost capped near 2.5%
Cap payouts offset rate rises above 2.5%, so the borrower's interest is effectively capped.
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