If the (1,1 $\sigma = 0.15$ , and the One-Year Spot Rate Is 4%, What Is

question 20

Multiple Choice

If the (1,1.5) -year forward rate is lognormal with volatility $\sigma = 0.15$ , and the one-year spot rate is 4%, what is the NPV of a $100,000-notional $12 \times 18$ -FRA at a 5% strike rate if the (1,1.5) -year forward rate is 6%, as seen from the buyer's point of view? (Assume the Black model applies for interest-rate options.)

• A) \(- \$ 470.88\)
• B) $0
• C) $475.61
• D) $480.39

---

Definitions:

Cones

Photoreceptor cells in the retina that are responsible for color vision and function best in relatively bright light.

Visual Receptors

Visual receptors are cells located in the retina of the eye that are sensitive to light and enable vision.

Retina

The light-sensitive layer of tissue at the back of the inner eye, which converts light images into electrical signals sent to the brain.

Optic Nerve

The nerve that transmits visual information from the retina to the brain.