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Question
Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1 percent per year.
What should be the price of a three-year 5 percent floor if the current (spot) rates are also 6 percent? The face value is $5,000,000, and time periods are zero, one, and two.
A. $8,250.
B. $10,799.
C. $12,550.
D. $15,875.
E. $17,455.
Answer
This answer is hidden. It contains 170 characters.
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