Consider a One-Year Maturity Caplet on Underlying Six-Month Libor at a Strike

question 23

Multiple Choice

Consider a one-year maturity caplet on underlying six-month Libor at a strike rate of 6%.If the forward rate is lognormal with volatility $\sigma = 0.10$ ,and the one-year spot rate is 5%,what is the price of a $100,000-notional caplet if the (1,1.5) -year forward rate is 6%?

• A)$113.80
• B)$139.34
• C)$160.96
• D)$227.59

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Definitions:

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