Orlando Bank entered into a three-year interest rate collar. The interest rate cap specifies a fee of 3% of notional principal valued at $50 million with an interest rate ceiling of 10%. The interest rate floor specifies a fee of 3% of notional principal valued at $50 million and an interest rate floor of 8%. The level of LIBOR over the next three years is:

Year 1= 6% Year 2= 12% Year 3= 11% What is Orlando Bank's net profit (loss) from this strategy?

The answer is $500,000 profit

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