75% AND EXPIRING ON 15 APRIL 2010. THE PUT PREMIUM WAS $25,000. LIBO...

5.75% and expiring on 15 April 2010. The put premium was $25,000. LIBOR rates on 16 March2010, and

15 April 2010, were 6% and 4%, respectively. The option was exercised on 15 April 2010, and the payoff

was received on 12 October 2010. FCB has asked for a written evaluation of the success of the strategy.

On 15 October 2011, another client, Short Hills Corporation (SHC), indicates it expects to take out a $25

million dollar loan on 15 December 2011. The loan rate is 90-day LIBOR + 100 basis points. Interest and

principal will be paid on 14 March 2012, 90 days after the loan is made on 15 December 2011. SHC is

concerned about rising interest rates and has approached Silva for recommendations on addressing this

issue. On Silva’s advice, SHC purchases a $25 million interest rate call on 90-day LIBOR with an exercise

rate of 3.5%. The option premium is $45,000, and it expires in 61 days, on 15 December 2011. If the

option is exercised on 15 December 2011, the payoff will be received on 14 March 2012. SHC has asked

Silva to provide a report on possible outcomes relative to potential interest rate scenarios.