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Calculate price of option that caps the three-month rate

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Calculate the price of an option that caps the three-month rate, starting in 15 months time, at 13% (APR with quarterly compounding) on a principal amount of $1,000. The forward interest rate for the period in question is 12% per annum (APR with quarterly compounding), the 18-month risk-free rate (continuously compounded) is 11.5% per annum, and the volatility of the forward rate is 12% per annum.

Reference no: EM133074590

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