Bonds Maturing in 1,2,and 3 Years Have Prices of 0

question 10

Multiple Choice

Bonds maturing in 1,2,and 3 years have prices of 0.9600,0.9153 and 0.8620,respectively.A 0.9300 strike call on a 1-year bond matures in 1 year with σ = 0.20.What is the price of an 8.0% interest rate caplet that expires in 1 year?

• A) $0.66
• B) $0.76
• C) $0.86
• D) $0.96

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Definitions:

Control Group

In experimental research, the group of subjects that does not receive the treatment being tested, used as a benchmark to measure the effect of the treatment.

Independent Variable

An independent variable is the variable in an experiment or study that is manipulated or changed by the researcher to observe its effect on the dependent variable.

Dependent Variable

In an experiment, the variable that is tested and measured, expected to change due to the independent variable.

Experimental Group

In research, a group of subjects exposed to the variable under study to determine its effects, contrasted with a control group.