Suppose That a Company Has Issued a Floating Rate Note

Multiple Choice

Suppose that a company has issued a floating rate note paying (bbalibor) .To create an interest rate collar that confines the payments between 3 percent and 7 percent,the company should trade the following interest rate derivatives:

A) buy a cap with a strike rate of 6.50 percent and sell a floor with a strike rate of 2.50 percent
B) buy a cap with a strike rate of 7.00 percent and sell a floor with a strike rate of 3.00 percent
C) buy a cap with a strike rate of 6.50 percent and sell a floor with a strike rate of 3.50 percent
D) sell a cap with a strike rate of 7.00 percent and buy a floor with a strike rate of 3.00 percent
E) sell a floor with a strike rate of 6.50 percent and buy a floor with a strike rate of 2.50 percent