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PLEASE ITS URGENT, PLEASE ITS URGENT Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1% per
PLEASE ITS URGENT, PLEASE ITS URGENT
Assume a binomial pricing model where there is an equal probability of interest rates increasing or decreasing 1% per year.
What should be the pice of a three-year 6% cap if the current (spot) rates are also 6%? The face value is $5,000,000, and time periods are zero, one, and two. (Payments are exchanged at the "end of year" 1, 2 or 3. Rates on swap payment are decided by the stat of the period interest rate.)
A. $20,409.
B. $42,450.
C. $25,000.
D. $66,030.
E. $22,041.
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