Interest rate options quick quiz

Interest rate options quick quiz

(a) Rank the following options in order of value, from greatest to least.
A. 7yr 5% floor on 3mL.
B. 7yr 5.5% floor on 3mL.
C. 10yr 5.5% floor on 3mL.
D. 7yr 5% floor on 3mL, the whole deal knocking out if 3mL ever fixes below 3%.
E. 7yr 5.25% floor on 3mL, knocking out for periods where 3mL fixes above 7%.
F. 7yr 5% floor on 3mL, knocking out for periods where 3mL fixes below 3%.
(b) Rank the following options in order of value, from greatest to least.
A. 2yr-into-3yr 6% payer swaption.
B. 2yr-by-5yr 6% cap on 3mL.
C. 2yr-into-3yr 6% Bermudan payer swaption with quarterly exercises.
D. 2yr-into-3yr 6% Bermudan payer swaption with semi-annual exercises. You can assume the swaps underlying A, C and D have quarterly payment dates versus 3mL.
(c) A customer wants to pay fixed for 15yrs, with the one-time right to cancel the swap after 5yrs. Which of the following strategies will precisely accomplish this? You may choose none, one or more than one.
I Customer pays fixed for 15yrs and buys a 5yr-into-10yr European payer swaption.
II Customer pays fixed for 5yrs and buys a 5yr-into-10yr European payer swaption.
III Customer pays fixed for 15yrs and buys 5yr-into-10yr European receiver swaption.
IV Customer pays fixed for 5yrs and buys a 5yr-into-10yr European receiver swaption.
(d) A customer wants to have the same trade as in (c), but with Bermudan cancellation options starting in five years. Which of the following strategies will precisely accomplish this? You may choose none, one or more than one.
I Customer pays fixed for 15yrs and buys a 5yr-into-10yr Bermudan payer swaption.
II Customer pays fixed for 5yrs and buys a 5yr-into-10yr Bermudan payer swaption.
III Customer pays fixed for 15yrs and buys a 5yr-into-10yr Bermudan receiver swaption. IV Customer pays fixed for 5yrs and buys a 5yr-into-10yr Bermudan receiver swaption.