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Assume Annual Compounding σ=0.30\sigma = 0.30 What Is the Price of a One-Year Maturity Floor on BDT

Question 19

Multiple Choice

Assume annual compounding.The one-year and two-year zero-coupon rates in the BDT model are 6% and 7%.The volatility is given to be σ=0.30\sigma = 0.30 .What is the price of a one-year maturity floor on the one-year interest rate at a strike rate of 8% and a notional of $100?


A) 1.000
B) 1.026
C) 1.052
D) 1.078

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