Question: Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly compounding) for 3 months starting in one year.

Consider a contract that caps the LIBOR interest rate on $10,000

Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly compounding) for 3 months starting in one year. This is a caplet and could be one element of a cap. Suppose the LIBOR/Swap curve zero curves are flat at 7% per annum with quarterly compounding, and the volatility of The 3-month forward rate underlying the caplet is 20% per annum. What is the price of the caplet? O A. 5.19 OB. 6.84 O C. 4.43 OD.5.75 Consider a contract that caps the LIBOR interest rate on $10,000 at 8% per annum (with quarterly compounding) for 3 months starting in one year. This is a caplet and could be one element of a cap. Suppose the LIBOR/Swap curve zero curves are flat at 7% per annum with quarterly compounding, and the volatility of The 3-month forward rate underlying the caplet is 20% per annum. What is the price of the caplet? O A. 5.19 OB. 6.84 O C. 4.43 OD.5.75

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