Exhibit 14-4 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 14-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
A company buys an interest rate cap that pays the difference between LIBOR and 8% if LIBOR exceeds 8%. Current LIBOR is 7%. The amount of the option is $2,500,000, and the settlement is every 6 months. Assume a 360 day year.
-Refer to Exhibit 14-4. Find the payoff if LIBOR closes at 7.8%.

A) $0.00
B) $25,000.00
C) $50,000.00
D) -$25,000.00
E) -$50,000.00