You are given the following short-term interest rates in a


You are given the following short-term interest rates in a Black-Derman-Toy binomial tree: r0 = 0.05, rd = 0.04, ru = 0.09, rdd = 0.06, ruu = 0.18, rddd = 0.04, ruud = 0.16. A year-4 floorlet has a strike rate of 0.07. The floorlet has a notional amount of $100. What is the current value of this floorlet?

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Financial Management: You are given the following short-term interest rates in a
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