Assume a Binomial Pricing Model Where There Is an Equal

question 65

Multiple Choice

Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1 percent per year. What should be the price of a three-year 5 percent floor if the current (spot) rates are also 6 percent? The face value is $5,000,000, and time periods are zero, one, and two.

• A)$8,250.
• B)$10,799.
• C)$12,550.
• D)$15,875.
• E)$17,455.

---

Definitions:

ACh Agonists

Substances that mimic or enhance the action of acetylcholine, a neurotransmitter involved in muscle activation and several brain functions.

Adrenal Glands

Endocrine glands located above the kidneys that produce various hormones, including adrenaline and cortisol, which help control blood sugar, burn protein and fat, react to stressors, and regulate blood pressure.

Acetylcholine

A neurotransmitter in the brain and body involved in many functions including muscle activation, heartbeat regulation, and memory formation.

Epinephrine

A crucial chemical in stress response, responsible for preparing the body for quick action by boosting energy levels and alertness.