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

question 12

Multiple Choice

Consider a one-year maturity caplet on underlying six-month Libor at a strike rate of 6%. If the forward rate is lognormal with volatility $\sigma = 0.10$ , and the one-year spot rate is 5%, what is the price of a $100,000-notional caplet if the (1,1.5) -year forward rate is 6%?

• A) $113.80
• B) $139.34
• C) $160.96
• D) $227.59

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