A three-year floating rate bond pays annual coupons of one-year reference rate (set in arrears) and is
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A three-year floating rate bond pays annual coupons of one-year reference rate (set in arrears) and is capped at 5.600%. The reference rate swap curve is as given in Exhibit 1 (i.e., the one-year, two-year, and three-year par yields are 2.500%, 3.000%, and 3.500%, respectively), and interest rate volatility is 10%. The value of the capped floater is closest to:
A. 100.000.
B. 105.600.
C. 105.921.
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