Assume Annual Compounding $\sigma = 0.30$ What Is the Price of a One-Year Maturity Floor on BDT

question 19

Multiple Choice

Assume annual compounding.The one-year and two-year zero-coupon rates in the BDT model are 6% and 7%.The volatility is given to be $\sigma = 0.30$ .What is the price of a one-year maturity floor on the one-year interest rate at a strike rate of 8% and a notional of $100?

• A)1.000
• B)1.026
• C)1.052
• D)1.078

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Definitions:

Prosopagnosia

A neurological condition characterized by the inability to recognize the faces of familiar people.

Visual Sensation

The process of the eyes detecting light and converting it into neural signals that are interpreted by the brain to form visual perception.

Visual Perception

The process by which the brain interprets and makes sense of visual stimuli or images seen by the eyes.

Retinal Disparity

A binocular cue for perceiving depth: By comparing images from the retinas in the two eyes, the brain computes distance—the greater the disparity (difference) between the two images, the closer the object.