1. It is September 2020. Bank X has a 3-month maturity floating rate loan at LIBOR+2. The bank wants to earn net income of at least 2%, annualized. The forward yield curve is provided in the table below. The loan is financed with a one-year deposit at LIBOR. Term Forward rate September - December 10% December - March 8 March - June 6 June - September 4 a. The bank is considering a cap or a floor. Which should it use? What is the cap or floor rate the bank wants on the option? b. If the premium on caps and floors is 2% on an annualized basis, what will net income be for the year, if interest rates change as follows: the three-month spot rate in December, 2020 is 7%; the three-month spot rate in June, 2021 is 12%; and the three-month spot rate in September, 2021 is 2%. 1. It is September 2020. Bank X has a 3-month maturity floating rate loan at LIBOR+2. The bank wants to earn net income of at least 2%, annualized. The forward yield curve is provided in the table below. The loan is financed with a one-year deposit at LIBOR. Term Forward rate September - December 10% December - March 8 March - June 6 June - September 4 a. The bank is considering a cap or a floor. Which should it use? What is the cap or floor rate the bank wants on the option? b. If the premium on caps and floors is 2% on an annualized basis, what will net income be for the year, if interest rates change as follows: the three-month spot rate in December, 2020 is 7%; the three-month spot rate in June, 2021 is 12%; and the three-month spot rate in September, 2021 is 2%