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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 net price of a $5,000,000 collar if the bank purchases a three-year 6 percent cap and sells a 5 percent floor, if the current (spot) rates are 6 percent?
A. The bank will receive net $2,010.
B. The bank will receive net $31,651.
C. The bank will pay net $31,651.
D. The bank will pay net $2,010.
E. price = $0
Answer
This answer is hidden. It contains 98 characters.
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