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LOS b: Determine the effective annual rate for a given interest rate outcome when a borrower (lender) manages the risk of an anticipated loan using an interest rate call (put) option.
Q1. In 30 days, a firm wishes to borrow $15 million for 90 days. The borrowing rate is LIBOR plus 250 basis points. The current LIBOR is 3.8%. The firm buys an interest-rate call that matures in 30 days with a notional principal of $15 million, 90 days in underlying, and a strike rate of 4%. The call premium is $4,000. What is the maximum effective annual rate the firm can anticipate paying?
A) 0.0687.
B) 0.0671.
C) 0.0603.
Q2. In 90 days, a firm wishes to borrow $10 million for 180 days. The borrowing rate is LIBOR plus 200 basis points. The current LIBOR is 4%. The firm buys an interest-rate call that matures in 90 days with a notional principal of $10 million, 180 days in underlying, and a strike rate of 4.1%. The call premium is $9,000. What is the effective annual rate of the loan if at expiration LIBOR = 4%?
A) 0.0619.
B) 0.0637.
C) 0.0787.
Q3. In 60 days, a bank plans to lend $10 million for 180 days. The lending rate is LIBOR plus 200 basis points. The current LIBOR is 4.5%. The bank buys an interest-rate put that matures in 60 days with a notional principal of $10 million, days in underlying of 180 days, and a strike rate of 4.3%. The put premium is $4,000. What is the effective annual rate of the loan if at expiration LIBOR = 4.1%?
A) 0.0648.
B) 0.0619.
C) 0.0640. | 
发表于 2009-4-10 10:53
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