A company buys a caplet today (time 0) with maturity T = 1 year and a strike rate of k = 3 percent on a notional of LN = $200 million.Suppose the six-month bbalibor rate realized after one year is 4.5 percent.Assume that there are 181 days in this six-month period and the year has 365 days.
-Suppose that after one year,the price of a zero-coupon bond that matures after six months is worth $0.9780.The caplet's payoff after one year is:
A) $1,454,942
B) $1,470,000
C) $1,487,671
D) $1,500,000
E) None of these answers are correct.
Correct Answer:
Verified
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