Consider a One-Year Caplet on Underlying Six-Month Libor at a Strike

question 13

Multiple Choice

Consider a one-year caplet on underlying six-month Libor at a strike rate of 6%. If the corresponding floorlet is equal to the caplet in price, what is the current forward rate for the period (1,1.5) years?

• A) \(< 6 \%\)
• B) \(= 6 \%\)
• C) \(> 6 \%\)
• D) Cannot be determined from the given information.

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Definitions:

Fixed Ratio Schedule

A schedule of reinforcement where a response is reinforced only after a specified number of responses.

Fixed Ratio

A schedule of reinforcement where a response is rewarded only after a specified number of responses, often used in learning and conditioning.

Gym

A facility equipped with specialized equipment for strength, cardio, and flexibility training, aimed at improving physical fitness.

Reward

A positive reinforcement given following a desired behavior, with the aim of increasing the likelihood of the behavior occurring again.