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LOS d: Define interest rate caps, floors, and collars. ffice ffice" />
Q1. An investor who bought a floating-rate security and wishes to establish a minimum periodic cash flow on his investment could:
A) buy an interest-rate floor.
B) sell an interest-rate floor.
C) sell an interest-rate cap.
Correct answer is A)
The buyer of a floor will receive a payment when the floating rate is below the floor rate, effectively establishing a minimum rate on the floating rate security.
Q2. Buying an interest-rate cap and selling an interest-rate floor is equivalent to:
A) buying a series of interest-rate puts and selling a series of interest rate calls.
B) buying a series of interest-rate puts and calls.
C) buying a series of interest-rate calls and selling a series of interest-rate puts.
Correct answer is C)
A cap is equivalent to a series of (long) interest-rate calls and selling a floor is equivalent to selling a series of interest-rate puts.
Q3. The owner, of an interest-rate cap will:
A) receive a payment if the market rate exceeds the cap rate.
B) be required to make a payment if the market rate exceeds the cap rate.
C) receive a payment if the market rate is less than the cap rate.
Correct answer is A)
An interest-rate cap will pay its owner the maximum of zero or the market rate minus the cap rate, times the notional principal.
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发表于 2009-3-2 10:42
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