If the (1,1 $\sigma = 0.15$ ,And the One-Year Spot Rate Is 4%,what Is the NPV

question 4

Multiple Choice

If the (1,1.5) -year forward rate is lognormal with volatility $\sigma = 0.15$ ,and the one-year spot rate is 4%,what is the NPV of a $100,000-notional $12 \times 18$ -FRA at a 5% strike rate if the (1,1.5) -year forward rate is 6%,as seen from the buyer's point of view? (Assume the Black model applies for interest-rate options. )

• A) \(- \$ 470.88\)
• B)$0
• C)$475.61
• D)$480.39

---

Definitions:

Cyanosis

A bluish or purplish discoloration of the skin and mucous membranes due to insufficient oxygen in the blood.

Anterior Fontanel

The largest soft spot on a baby's skull where the bones haven't yet fused, allowing for growth of the brain.

Airway

The path through which air enters and leaves the body, including the nose, mouth, throat, and lungs, which is crucial for breathing.

Gestational Age

The age of an embryo or fetus calculated from the first day of the last menstrual period of the pregnant mother.