Question: Use the interest rate tree below. The first number at each node is the 0.5-year rate at that node. The next number is the price

 Use the interest rate tree below. The first number at each

Use the interest rate tree below. The first number at each node is the 0.5-year rate at that node. The next number is the price of $1 par of a 0.5-year zero at that node. The next number, at the time 0 node, is the price of $1 par of a 1-year zero. a) What is the value of a 5.25% interest rate cap on $100 notional amount of a 1-year semi-annual floating rate note? b) What is the value of $100 par of a 1-year semi-annual floating rate note that is capped at 5.25%? Use the interest rate tree below. The first number at each node is the 0.5-year rate at that node. The next number is the price of $1 par of a 0.5-year zero at that node. The next number, at the time 0 node, is the price of $1 par of a 1-year zero. a) What is the value of a 5.25% interest rate cap on $100 notional amount of a 1-year semi-annual floating rate note? b) What is the value of $100 par of a 1-year semi-annual floating rate note that is capped at 5.25%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!