If a Firm Creates an Interest Rate Collar on a Variable

Multiple Choice

If a firm creates an interest rate collar on a variable rate loan, then the rate the firm pays will always:

A) remain constant at the average of the floor and cap rates.
B) remain constant at the floor rate.
C) remain constant at the cap rate.
D) be higher than, or equal to, the cap but lower than, or equal to, the floor.
E) be higher than, or equal to, the floor but lower than, or equal to, the cap.