Question: 20. Using the binomial interest rate tree from the previous question, answer the following questions for a 3-year floor with a floor rate of 5.5%

20. Using the binomial interest rate tree from the previous question, answer the following questions for a 3-year floor with a floor rate of 5.5% where the payoff is annual. Assume that the notional amount of the floor is $50 million.

a. What is the value of the Year 1 floorlet?

b. What is the value of the Year 2 floorlet?

c. What is the value of the Year 3 floorlet?

d. What is the value of the 3-year floor?

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