Which of the Following Is Assumed to Be Lognormal When

question 9

Multiple Choice

Which of the following is assumed to be lognormal when a caplet is valued?

• A) A future bond price
• B) A future swap rate
• C) A future short-term rate
• D) A future long-term rate

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Definitions:

Investment Proposal

A formal suggestion for investing capital, typically encompassing projected costs, benefits, risks, and returns.

Net Present Value

A method used to evaluate the profitability of an investment, calculating the difference between the present value of cash inflows and outflows over a period of time.

Straight-Line Method

A method of calculating depreciation of an asset by evenly spreading its cost over its useful life.

Net Present Value

A financial measure that determines the variance between the current worth of cash coming in and the current worth of cash going out over a specified timeframe.