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:

Five Stages

A reference to a model or process divided into five distinct phases, often used in contexts like grief or development.

Eccrine Sweat Glands

Small sweat glands distributed throughout much of the body, primarily involved in thermoregulation by secreting sweat.

Watery Sweat

Sweat that is particularly dilute, containing a higher proportion of water relative to solutes like salts and proteins.

Body Heat

The warmth generated by metabolic processes in the body, crucial for maintaining a stable internal temperature.