Suppose that the time 0 simple forward rate i(0,2) is 0 045 per year, the notional principal LN is $40 million, the strike rate k is 0 04 per year, the time period for interest computation is 3 months, the caplet matures in T 2 years, the average forward rate volatility is 0 15 per year, and a zero coupon bond maturing after 2 25 years is worth B(0,T ) $0 89 today What is the value of the caplet

Question: Suppose that the time 0 simple forward rate i(0,2) is 0.045 per year, the notional principal LN is $40 million, the strike rate k is

Suppose that the time 0 simple forward rate i(0,2) is 0.045 per year, the notional principal LN is $40 million, the strike rate k is 0.04 per year, the time period for interest computation δ is 3 months, the caplet matures in T = 2 years, the average forward rate volatility is 0.15 per year, and a zero-coupon bond maturing after 2.25 years is worth B(0,T + δ) = $0.89 today.
What is the value of the caplet?

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