What is the price of a 3-year interest rate cap with an 11.5% (effective annual) cap rate?
Answer to relevant QuestionsSuppose the yield curve is flat at 8%. Consider 3- and 6-year zero-coupon bonds.You buy one 3-year bond and sell an appropriate quantity of the 6-year bond to durationhedge the position. Any additional investment is in ...Verify that the 1-year yield volatility of the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is 0.14. Assuming a $10m investment that is 40% stock A and 60% stock B, compute the 95% and 99% VaR for the position over 1-day, 10-day, and 20-day horizons. Consider two firms, one with an FF rating and one with an FFF rating. What is the probability that after 4 years each will have retained its rating? What is the probability that each will have moved to one of the other two ...Repeat the previous problem, only compute the expected recovery value instead of the default probability. How does the expected recovery value change as time to maturity changes?
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