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(Valuing Caps.) Assume that the 6-month forward rate volatility is 18% and you see the following prices for 1-year and 18-month LIBOR-quality zero coupon bonds: B0;1 D 95:784 B0;1:5 D 93:585:

(a) Use the Black ’76 model to value a one-year caplet on the 6-month T-Bill rate, with a cap rate of 4.5%, written on a notional principle of $10,000.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92261059

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