Consider the Following Table of Prices of Five-Year Semi-Annual Pay

question 7

Multiple Choice

Consider the following table of prices of five-year semi-annual pay caps and floors: $$\begin{array} { | c | c | c | } \hline \text { Strike (\%/) } & \text { Cap price } & \text { Floor price } \\\hline 4 \% & 2.50 & 0.50 \\\hline 5 \% & 1.50 & 1.50 \\\hline 6 \% / & 0.50 & 2.50 \\\hline\end{array}$$ Assume that the caps and floors also include the first payment in 6 months, so there are 10 payment dates in each instrument. The quoted prices of the caps and floors includes this first payment for which the floating leg has already been set. What is the fixed-rate on a five-year fairly priced swap?

• A) 4%
• B) 5%
• C) 6%
• D) Not possible to determine from the available information.

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Definitions:

Genome

The full set of genes that are the instructions to make an individual member of a certain species.

Genes

Units of heredity made up of DNA that influence the development and functions of an organism.

Homozygous

Referring to two genes of one pair that are exactly the same in every letter of their code. Most gene pairs are homozygous.

Heterozygous

Referring to two genes of one pair that differ in some way. Typically one allele has only a few base pairs that differ from the other member of the pair.