Question
3. (Valuing Caps.) Use the Black 76 model to value a one-year caplet on the 6-month T-Bill rate, with a cap rate of 4.5%, written
3. (Valuing Caps.)
Use the Black 76 model to value a one-year caplet on the 6-month T-Bill
rate, with a cap rate of 4.5%, written on a notional principleof $10,000.
Assume that the 6-month forward rate volatility is 18% and you see the
following prices for 1-year and 18-month zero coupon bonds:
B0;1 =95:782
B0;1:5 =93:585:
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Business Mathematics
Authors: Gary Clendenen, Stanley A Salzman, Charles D Miller
12th Edition
0135109787, 9780135109786
