A payer swaption is expiring.The underlying swap has a two year maturity.Th e present value factors are 0.9259 (one year)and 0.8651 (two years).The strike rate is 7 percent.What is the value of the swaption per $1 notional amount.
A)0.0000,since it is out-of-the-money
B)1.0000
C)0.0753
D)0.0095
E)none of the above

Question

Quizplus · Accepted Answer

The value of a payer swaption can be calculated using the present value of the difference between the strike rate and the forward rate, discounted back at the present value factors. Since the specific forward rate isn't provided, we can't directly calculate it here. However, the correct approach involves using the present value factors and the strike rate to determine if the swaption is in-the-money or out-of-the-money and then calculate its value. Given the options, the specific calculation details are not provided, but typically, a non-zero value like 0.0095 suggests a calculation was made considering it's in-the-money, implying the forward rate is above the strike rate, making the swaption valuable.

A Payer Swaption Is Expiring