alleryStart learning →Same collar, 8% cap and 5% floor sold. Rate falls to 4%. Effective rate?
A8%
B4%
C5%
D3%
Answer & Solution
Correct answer: C. 5%
The sold floor makes the borrower pay 1% (5% - 4%), so the net cost is 4% + 1% = 5%.
Keep practising Interest Rate Risk
Browse all Interest Rate Risk questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
A borrower buys an FRA at 7%. Its loan resets at 9%. Effective cost is about?Firm A pays 8% fixed or MIBOR+1%; B pays 10% fixed or MIBOR+2%. Quality spread differentiaA bank has Rs 500 cr rate-sensitive assets and Rs 350 cr liabilities. Rates rise 1%. IncomBond modified duration is 4.5. Yield rises 0.5 points. Approx price change?Eurodollar price rises 95.50 to 95.60. Long gain per contract (tick 0.005, $12.50)?A Eurodollar future trades at 96.40. What rate does it imply?A Eurodollar future implies a 3-month rate of 4.25%. Its price is?Borrower holds an 8% cap and sold a 5% floor. Rate hits 9%. Effective rate, ignoring premi