Exam 21: Interest Rate Options

At the maturity of a bond option,it is estimated that the underlying bond will have a duration of 6 years and a yield of 5%.The forward yield volatility is quoted as 25%.What is the volatility of the forward bond price?

In a cap with quarterly reset dates,the cap rate is 3.5% per annum and the notional principal is $1 million.Suppose that the LIBOR rate is 4.0% per annum for a particular 3-month period.What is the approximate payoff at the end of the 3 months?

A floating-rate borrower wants to use a collar as a hedge.Which of the following is appropriate?

A Eurodollar futures option contract has a strike price of 97 and the Eurodollar interest rate is 2.50%.What is the intrinsic value of the contract if the option is a put?

A ten year interest rate cap has quarterly resets.How many caplets does the cap consist of?

Which of the following is true?

A Eurodollar futures option contract has a strike price of 97 and the Eurodollar interest rate is 2.50%.What is the intrinsic value of the contract if the option is a call?

Which of the following is assumed to be lognormal when a swap option is valued?

The price of a December put futures option is quoted as 5-52.Each Treasury bond futures contract is for delivery of $100,000 in Treasury bonds.What is the cost of one contract?

A five-year cap is reset annually period.The cap rate is 3% and the notional principal is $100 million.The 12-month LIBOR interest rate for the third year proves to be 5%.Which of the following is approximately true?

Which of the following is true?

What is exchanged when a put option on an interest rate futures is exercised?

Which of the following is true?

A floating-rate lender wants to use a collar as a hedge.Which of the following is appropriate?

Which of the following is true?

Which of the following is an implication of the mean reversion of interest rates?

Which of the following is assumed to be lognormal when a caplet is valued?

In a floor with semiannual reset dates,the floor rate is 3.5% per annum and the notional principal is $1 million.Suppose that the LIBOR rate is 3% per annum for a particular 6-month period.What is the approximate payoff at the end of the 6 months?

Which of the following is assumed to be lognormal when a bond option is valued?

In put-call parity for caps and floors,which of the following is true?