Consider a one-year caplet on underlying six-month Libor at a strike rate of 6%. If the corresponding floorlet is equal to the caplet in price, what is the current forward rate for the period (1,1.5) years? A) $ 6 \%$ D) Cannot be determined from the given information.

Question

Consider a one-year caplet on underlying six-month Libor at a strike rate of 6%. If the corresponding floorlet is equal to the caplet in price, what is the current forward rate for the period (1,1.5) years?
A) $< 6 \%$
B) $= 6 \%$
C) $> 6 \%$
D) Cannot be determined from the given information.

Quizplus · Accepted Answer

The price of a caplet equals the price of a floorlet when the current forward rate for the period is equal to the strike rate, which in this case is 6%.

Consider a One-Year Caplet on Underlying Six-Month Libor at a Strike