Question #25
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 12
Status: Unattempted
Correct Answer: B
Question
Mark Roberts anticipates utilizing a floating rate line of credit in 90 days to purchase $10 million of raw materials. To get protection against any increase in the expected MRR yield curve, Roberts should:
Answer Choices:
A. write a receiver swaption
B. buy a payer swaption
C. buy a receiver swaption
Explanation
A payer swaption will give Roberts the right to pay a fixed rate below market if rates rise.