Business
Business, 09.04.2020 20:02, alfonso55

An FI has purchased a $212 million cap of 10 percent at a premium of 0.65 percent of face value. A $212 million floor of 5.2 percent is also available at a premium of .70 percent of face value.

a. If interest rates rise to 11 percent, what is the amount received by the FI? What are the net savings after deducting the premium?
b. If the FI also purchases a floor, what are the net savings if interest rates rise to 12 percent? What are the net savings if interest rates fall to 4.2 percent? (Negative amounts 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 12 percent? What if they fall to 4.2 percent? (Negative amounts should be indicated by a minus sign.)

a. Amount received $2,120,000
Net savings $742,000
b. Net savings if interest rates rise to 11 percent
Net savings if interest rates fall to 3 percent
c. Net savings if interest rates rise to 11 percent
Net savings if they fall to 3 percent

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Answers: 2

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An FI has purchased a $212 million cap of 10 percent at a premium of 0.65 percent of face value. A $...

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