A few months from now, Jackson Corporation is planning to borrow $20 million for 8 months (240 days) at the prime interest rate. To hedge their exposure, Jackson and Wells Fargo enter into an 8-month FRA with a notional principal of $20 million. The terms are Jackson will pay Wells Fargo if the prime rate on the settlement date is less than 4.5 percent. If prime exceeds 4.5 percent, Wells Fargo will pay Jackson. What will happen if the prime rate is 2.55 percent on the settlement date?
A. Jackson will pay Wells Fargo $293,701
B. Jackson will pay Wells Fargo $188,444
C. Jackson will pay Wells Fargo $132,612
D. Jackson will pay Wells Fargo $255,654
E. Jackson will pay Wells Fargo $167,880