Suppose that a company that has borrowed money for five year…
Suppose that a company that has borrowed money for five years at LIBOR flat purchases a five-year cap with strike price 3% and sells a five-year floor with strike price 1%. The amortised annual cost of the cap is 50bp and the annual amortised cost of the floor is 20bp. What are the maximum and minimum effective interest rates that the company will pay in any period?
Suppose that a company that has borrowed money for five year…
Questions
Suppоse thаt а cоmpаny that has bоrrowed money for five years at LIBOR flat purchases a five-year cap with strike price 3% and sells a five-year floor with strike price 1%. The amortised annual cost of the cap is 50bp and the annual amortised cost of the floor is 20bp. What are the maximum and minimum effective interest rates that the company will pay in any period?
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