# Question

a. What is the 1-year bond forward price in year 1?

b. What is the price of a call option that expires in 1 year, giving you the right to pay $0.9009 to buy a bond expiring in 1 year?

c. What is the price of an otherwise identical put?

d. What is the price of an interest rate caplet that provides an 11% (effective annual rate) cap on 1-year borrowing 1 year from now?

b. What is the price of a call option that expires in 1 year, giving you the right to pay $0.9009 to buy a bond expiring in 1 year?

c. What is the price of an otherwise identical put?

d. What is the price of an interest rate caplet that provides an 11% (effective annual rate) cap on 1-year borrowing 1 year from now?

## Answer to relevant Questions

Verify that the price of the 12% interest rate cap in Figure 25.6 is $3.909. You are going to borrow $250m at a floating rate for 5 years. You wish to protect yourself against borrowing rates greater than 10.5%. Using each tree, what is the price of a 5-year interest rate cap? (Assume that the cap ...What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate? Compute the 95% 10-day tail VaR for the position in Problem 26.8. In Problem 26.8. Compute the 95% 10-day VaR for a written strangle (sell an out-of-the-money call and an out-of-the-money put) on 100,000 shares of stock A. ...Repeat the previous problem, only use Monte Carlo simulation.Post your question

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