Mike Ross, CFA, is working with Caxton Global. He has been asked to value a $100 par, two-year, floating rate note that pays LIBOR. He has construct the two-year LIBOR tree as shown below for valuing this bond.
Year 0 - 4.50%
Year 1 - 5.50% & 3.50%
He used this LIBOR tree to calculate the value of the floater with an assumption that it is capped with a cap rate of 5%. The value of this floater is:
A ) $98.38
B ) $98.16
C ) $98.99