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A company has arranged an interest rate collar with a bank, to hedge its exposure to rising interest costs on a variable rate loan of $5 million. The cap has a strike rate of 7% and the floor has a strike rate of 6%. For one particular six-month interest period, the LIBOR reference rate is 5.5%. Assuming an interest period of 180 days and a year of 360 days, what will be the payment under the cap agreement for this interest period? A. The company will pay the bank $12,500. B. The company will pay the bank $12,165.45. C. The bank will pay the company $12,165.45. D. There will be no payment. |