An interest-rate floor protects its holder from: A. Defaulting on its loan with the bank B....
An interest-rate floor protects its holder from:
A. Defaulting on its loan with the bank
B. Falling market interest rates in the future
C. Rising market rates in the future
D. Swapping from a fixed to variable rate loan
Homework Answers
Answer is Option B
As the name suggests, an interest floor generally serves as the minimum level fo interest rate (return or expense) guaranteed. This means if the bond holder owns a interest-rate floor cap, and in case if the market rate falls below the threshold defined, investor would still earn a minimal level of return.
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An interest-rate floor protects its holder from:
A. Defaulting on its loan with the bank
B....
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