Assume a Binomial Pricing Model Where There Is an Equal

question 26

Multiple Choice

Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1 percent per year.
-What should be the price of a three-year 5 percent floor if the current (spot) rates are also 6 percent? The face value is $5,000,000, and time periods are zero, one, and two.

• A)$8,250.
• B)$10,799.
• C)$12,550.
• D)$15,875.
• E)$17,455.

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Definitions:

Small Business Administration Loan

A type of loan offered by the Small Business Administration (SBA) to help small businesses get started or expand with less stringent qualifying criteria than conventional loans.

Bank Loan

A sum of money lent by a bank to an individual or organization under the agreement that it will be repaid with interest.

Sole Proprietorship

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Automatic Dissolve

A process by which a company or partnership ends its existence without formal action or legal proceedings due to predetermined conditions being met.