Suppose that all risk-free (OIS) zero rates are 6.5% (continuously compounded). The price of a 5-year semiannual cap with a principal of $100 and a cap rate of 8% (semiannually compounded) is $3. Use DerivaGem to determine:
(a) The 5-year implied flat volatility for caps and floors
(b) The floor rate in a zero-cost 5-year collar when the cap rate is 8%.
Assume that all six-month LIBOR forward rates are 6.7% with semiannual compounding.