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28 Sep 2019
An FI has purchased a $202 million cap of 9 percent at a premiumof 0.75 percent of face value. A $202 million floor of 4.2 percentis also available at a premium of .80 percent of face value.
a. If interest rates rise to 10 percent, what isthe amount received by the FI? What are the net savings afterdeducting the premium?
b. If the FI also purchases a floor, what are thenet savings if interest rates rise to 11 percent? What are the netsavings if interest rates fall to 3.2 percent? (Negativeamounts should be indicated by a minus sign.)
c. If, instead, the FI sells (writes) the floor,what are the net savings if interest rates rise to 11 percent? Whatif they fall to 3.2 percent? (Negative amounts should beindicated by a minus sign.)
a. Amountreceived Netsavings b. Netsavings if interest rates rise to 11 percent Netsavings if interest rates fall to 3 percent c. Netsavings if interest rates rise to 11 percent Net savings if they fall to 3 percent
An FI has purchased a $202 million cap of 9 percent at a premiumof 0.75 percent of face value. A $202 million floor of 4.2 percentis also available at a premium of .80 percent of face value.
a. If interest rates rise to 10 percent, what isthe amount received by the FI? What are the net savings afterdeducting the premium?
b. If the FI also purchases a floor, what are thenet savings if interest rates rise to 11 percent? What are the netsavings if interest rates fall to 3.2 percent? (Negativeamounts should be indicated by a minus sign.)
c. If, instead, the FI sells (writes) the floor,what are the net savings if interest rates rise to 11 percent? Whatif they fall to 3.2 percent? (Negative amounts should beindicated by a minus sign.)
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Jamar FerryLv2
28 Sep 2019