Find the Premium of a Correctly Priced Interest Rate Call

question 26

Multiple Choice

Find the premium of a correctly priced interest rate call on 30-day LIBOR if the current forward rate is 7 percent,the strike is 7 percent,the continuously compounded risk-free rate is 6.2 percent,the volatility is 12 percent and the option expires in one year.The notional principal is $30 million.

• A)$.0031
• B)$93,000
• C)$7,817
• D)$0.0012
• E)$36,000

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Definitions:

Raven's Progressive Matrices

A nonverbal group test typically used to measure abstract reasoning and regarded as a good estimate of fluid intelligence.

Intelligence

The ability to acquire and apply knowledge and skills, encompassing a range of cognitive functions including logic, understanding, self-awareness, learning, emotional knowledge, planning, creativity, and problem solving.

Emotional Intelligence

The ability to understand your own and others’ emotions and to control your emotions appropriately.

Tacit Intelligence

An individual's ability to understand and perform tasks without explicit instruction, often considered an aspect of practical intelligence.