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In 90 days, a firm wishes to borrow $10 million for 180 days. The borrowing rate is LIBOR plus 200 basis points. The current LIBOR is 4%. The firm buys an interest-rate call that matures in 90 days with a notional principal of $10 million, 180 days in underlying, and a strike rate of 4.1%. The call premium is $9,000. What is the effective annual rate of the loan if at expiration LIBOR = 4%? A. 0.0637. B. 0.0619. C. 0.0787. |