Assume a Binomial Pricing Model Where There Is an Equal

question 8

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 net price of a $5,000,000 collar if the bank purchases a three-year 6 percent cap and sells a 5 percent floor, if the current (spot) rates are 6 percent?

• A)The bank will receive net $2,010.
• B)The bank will receive net $31,651.
• C)The bank will pay net $31,651.
• D)The bank will pay net $2,010.
• E)price = $0

Understand the principles of reinforcement and punishment in behavioral psychology.

Identify and differentiate between primary, secondary, and tertiary reinforcements.

Comprehend the concept of shaping behavior through successive approximations.

Recognize the significance of the relationship between behavior and its consequences.

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Definitions:

Sample Variance

A metric indicating the spread or variation in a set of sample data, determined by dividing the sum of the squared differences from the mean by the total number of data points minus one.

Sample Variance

A measurement of the spread between numbers in a data sample, calculated by taking the mean of the squared deviations from the sample mean.

Squared Deviations

The squared differences between each observation and the mean, used in the calculation of variance.

Deviations Squared

The squares of the differences between individual data points and the mean of those points, used in calculating variance.