Suppose Libor Caps and Floors at the Same Strike Rate

question 22

Multiple Choice

Suppose Libor caps and floors at the same strike rate are unequal in price.Suppose that,ceteris paribus,there is a sudden increase in interest-rate volatility.Which of the following statements is valid?

• A)Caps and floors will increase in value,but caps will increase by more than floors.
• B)Caps and floors will increase by the same amount.
• C)Caps and floors will increase in value,but caps will increase by less than floors.
• D)There is insufficient information to determine the answer.

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