Question：A company arranges a borrower's option. The notional principal is $5 million, the strike rate is 6.5% and the interest period is nine months (270 days). At the option's expiry date, LIBOR is 7.6%.
What will be the payment to settle the option agreement, ignoring discounting? Assume a year of 360 days.
A. There will be no payment
B. $39,025.54
C. $41,250.00
D. $39,332.54
The correct answer is:$41,250.00.
解析：LIBOR is higher than the strike rate for the borrower's option, therefore the option will be exercised by the company. The payment is made immediately the option is exercised, i.e. at the start of the notional interest period.
The payment is:
((7.6% - 6.5%) x ($5 million x 270 days)) / 360 days = $41,250.00