Interest rates that include an inflation premium are referred to as:
A. annual percentage rates.
B. stripped rates.
C. effective annual rates.
D. real rates.
E. nominal rates.
Interest rates that include an inflation premium are referred to as:
A. annual percentage rates.
B. stripped rates.
C. effective annual rates.
D. real rates.
E. nominal rates.
Related questions
An FI has purchased a $202 million cap of 9 percent at a premiumof 0.75 percent of face value. A $202 million floor of 4.2 percentis also available at a premium of .80 percent of face value.
a. If interest rates rise to 10 percent, what isthe amount received by the FI? What are the net savings afterdeducting the premium?
b. If the FI also purchases a floor, what are thenet savings if interest rates rise to 11 percent? What are the netsavings if interest rates fall to 3.2 percent? (Negativeamounts should be indicated by a minus sign.)
c. If, instead, the FI sells (writes) the floor,what are the net savings if interest rates rise to 11 percent? Whatif they fall to 3.2 percent? (Negative amounts should beindicated by a minus sign.)
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