The 4%-Strike Six-Month Libor-Based Two-Year Cap and Floor Are Trading $- \$ 0.25$

question 32

Multiple Choice

The 4%-strike six-month Libor-based two-year cap and floor are trading at $2.30 and $2.55,respectively.Assume that the cap has 4 caplets maturing in 6 months,1 year,18 months,and 24 months,respectively,and that the floor similarly has 4 floorlets.What is the NPV at inception of a two-year swap in which you are paying Libor versus receiving 4%?

• A) \(- \$ 0.25\)
• B)$0
• C)$0.25
• D)There is not enough information to determine the price of the swap.

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Definitions:

Emotions

Complex psychological states that involve physiological arousal, expressive behaviors, and conscious experience.

Psychodynamic Theories

Theories that emphasize the influence of the unconscious mind and childhood experiences on personality and behavior.

Behavioral Theories

Refer to a range of theories in psychology that emphasize the importance of observable behaviors and the ways in which they are learned.

Anal-retentive Trait

A personality characteristic associated with those who are excessively orderly, neat, rigid, and controlling, stemming from Freudian psychoanalytic theory regarding psychosexual development stages.