Based on Your Answers to the Previous Two Questions and a Comparison

question 4

Multiple Choice

Based on your answers to the previous two questions and a comparison of the prices of the cap and floor, what can you say about the forward rate between one and two years?

• A) The forward rate is roughly equal to the strike rate of the cap and floor.
• B) The forward rate is such that the mark-to-market value of the FRA at the strike rate of the cap and floor will be zero.
• C) Both (a) and (b).
• D) There is not enough information to say anything about the forward rate.

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Definitions:

Experience

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Financial Management

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Cultural Awareness

The recognition and understanding of the differences and similarities between cultures, enhancing communication and interaction.

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