Question

If a firm sells a floor at 6% this will:

A.pay the firm 6% on their purchase.
B.pay the holder the LIBOR interest below the 6%.
C.None of the statements.
D.limit the amount of borrowing to 6% of assets.
E.pay the holder the LIBOR interest above 6%.

Answer 1

E.pay the holder the LIBOR interest above 6%.

Step-by-step explanation:

On the off chance that the firm is selling the asset(floor) at 6%, it implies that the benefit is in contract and thus when selling the floor the holder of the floor should make installment to the mortgagee at LIBOR+6%, after which the deal will be concluded.

Therefore, the answer will be pay the holder LIBOR interest above 6%