[Solved] A FI Buys a $500 Million Cap of 7 Percent

Question 48
Multiple Choice

A FI buys a $500 million cap of 7 percent at a premium of 0.75 percent of face value. In addition,it sells $500 million floor of 3 percent at a premium of 0.70 percent of face value.
If interest rates rise to 7.25% what is the net profit of the FI?

A)−$1,250,000
B)−$250,000
C)$0
D)$1,000,000
E)$1,250,000

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