Using the term structure of forward rates provided in the table below, calculate the market price...

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Using the term structure of forward rates provided in the table below, calculate the market price of an eighteen-month floorlet on a three-month loan. The floor rate is set to 4% per annum, based on the usual quoting convention, and the forward volatility is 15%. The notional amount of the loan is USD10 million. If you were to value shorter-dated floorlets at the same volatility, would they be more, less, or as expensive as the eighteen-month floorlet? Explain. Tenor 0x3 3x6 6x9 9x12 12x15 15x18 18x21 21x24 Rate 0.020 0.025 0.030 0.035 0.040 0.045 0.050 0.055 Days in period 90 92 92 91 90 92 92 91 Using the term structure of forward rates provided in the table below, calculate the market price of an eighteen-month floorlet on a three-month loan. The floor rate is set to 4% per annum, based on the usual quoting convention, and the forward volatility is 15%. The notional amount of the loan is USD10 million. If you were to value shorter-dated floorlets at the same volatility, would they be more, less, or as expensive as the eighteen-month floorlet? Explain. Tenor 0x3 3x6 6x9 9x12 12x15 15x18 18x21 21x24 Rate 0.020 0.025 0.030 0.035 0.040 0.045 0.050 0.055 Days in period 90 92 92 91 90 92 92 91

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To calculate the market price of an eighteenmonth floorlet on a threemonth loan we need to determine ... View the full answer