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Find the floor rate in a 3-year zero cost collar

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Find the floor rate in a 3-year zero cost collar, assuming current rates are 6.5% and they will go up or down by 1.7% each year with equal probability. Assume the cap rate is 7.7%. Provide your answer in % rounded to 2 decimal places. (In this question, we assume that a 3 year caps and floors will make their last payment at the end of year 3, based on the rates in effect at the start of year 3.)

Reference no: EM132403257

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