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

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 $\sigma = 0.30$ . 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