Question
Value a five-year collar that guarantees that the maximum and minimum interest rates on a LIBOR-based loan (with quarterly resets) are 5% and 7% respectively.
Value a five-year collar that guarantees that the maximum and minimum interest rates on a LIBOR-based loan (with quarterly resets) are 5% and 7% respectively. The LIBOR zero curve (continuously compounded) is currently flat at 6%. Use a flat volatility of 25%. Assume that the principal is $100.
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Foundations Of Financial Markets And Institutions
Authors: Frank J. Fabozzi, Franco Modigliani, Michael G. Ferri
2nd Edition
0136860567, 9780136860563
