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PRMIA Exam 8006 Topic 8 Question 50 Discussion

Actual exam question for PRMIA's Exam I: Finance Theory, Financial Instruments, Financial Markets – 2015 Edition exam
Question #: 50
Topic #: 8
[All Exam I: Finance Theory, Financial Instruments, Financial Markets – 2015 Edition Questions]

The price of an interest rate cap is determined by:

1. The period to which the cap relates

II. Volatility of the underlying interest rate

III. The exercise or the strike rate

IV. The risk free rate

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Suggested Answer: B

The price of an interest rate cap is affected by all of the listed choices except the risk free rate. The risk free rate does not come into play in the pricing of caps, and therefore Choice 'b' is the correct answer.


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