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.

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Definitions:

Splanchnic Nerves

A group of nerves that innervate the viscera (internal organs), playing a crucial role in the autonomic nervous system.

Pelvic Nerves

Nerves located in the pelvis that innervate the lower abdomen, genitals, and parts of the lower back and legs.

Urinary Bladder

A hollow muscular organ in humans and some other animals that collects and stores urine from the kidneys before disposal by urination.

Parasympathetic Axons

Nerve fibers that are part of the parasympathetic nervous system, responsible for transmitting impulses to organs and glands to support rest and digest functions.