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Assume that the Bank of Topeka anticipates that interest rates will increase over the next several years and decides to hedge the interest rate

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Assume that the Bank of Topeka anticipates that interest rates will increase over the next several years and decides to hedge the interest rate risk on its portfolios by purchasing a three-year interest rate collar, which uses LIBOR as the index used to represent the prevailing interest rate. The interest rate cap specifies a fee of 6 percent of notional principal valued at $80 million with an interest rate ceiling of 7 percent. The interest rate floor specifies a fee of 6 percent of notional principal valued at $80 million and an interest rate floor of 8 percent. Given this information, fill in the table that follows. Information Purchase of Interest Rate Cap LIBOR Interest Rate Ceiling LIBOR's Percent above the Ceiling Payments Received Fee Paid $ Sale of Interest Rate Floor Interest Rate Floor LIBOR's Percent below the Floor Payments Made Fee Received End of Year 0 1 2 3 5% 9% 12% 7% 7% 7% 0% 2% 5% 8% 8% 8% 3% 0% 0% $ Given the information filled out in the table, the Bank of Topeka's profit form the transaction after the three-year period is $

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