If the (1,1 $\sigma = 0.15$ , and the One-Year Spot Rate Is 4%, What Is

If the (1,1.5) -year forward rate is lognormal with volatility $\sigma = 0.15$ , and the one-year spot rate is 4%, what is the NPV of a $100,000-notional $12 \times 18$ -FRA at a 5% strike rate if the (1,1.5) -year forward rate is 6%, as seen from the buyer's point of view? (Assume the Black model applies for interest-rate options.)

A) $- \$ 470.88$
B) $0
C) $475.61
D) $480.39

Correct Answer:

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