Interest rates are currently 5%.

An FI has purchased a $200 million floor (i.e., put option on interest rates) of 3.5 percent at a premium of 0.6 percent of face value.

Rates fall to 4%.

a)Is the option (cap) in the money or out of the money?(1 Mark)

b)What is the net financial result (annualised) for the FI at this point?(1 Mark)