What is the current value of this caplet

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Reference no: EM131347150

You are given the following short-term interest rates in a Black-Derman-Toy binomial tree: r0 = 0.04, rd = 0.02, ru = 0.12, rdd = 0.047, rdu = 0.072. A year-3 caplet has a strike rate of 0.07. The caplet has a notional amount of $100. What is the current value of this caplet?

Reference no: EM131347150

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