Suppose the Premium on a Three Year,four Percent Floor Is

question 21

Multiple Choice

Suppose the premium on a three year,four percent floor is equal to the premium on a three year,eight percent cap.This combination is referred to as

• A) Zero-cost warrant
• B) Zero-premium strap
• C) Zero-cost collar
• D) Zero-premium swap
• E) Zero-cost FRA

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Definitions:

Availability Heuristic

A cognitive bias in which people judge the probability of events based on how easily examples come to mind, often leading to skewed perceptions of reality.

Base-Rate

The underlying or foundational rate of occurrence for a particular event or outcome within a given population or dataset.

Base-Rate Information

The frequency with which an event occurs within a general population.

Availability Heuristic

A cognitive bias where individuals rely on immediate examples that come to mind when evaluating a specific topic, concept, method, or decision.