What are the risks in a FRA if you are the buyer?
Answer the following questions:
a. When will the buyer of a five year cap on three- month LIBOR with a 1 percent strike rate expect to receive cash? What is the cap premium?
b. When will the buyer of a two year floor on three- month LIBOR with a 0.25 per-cent strike rate expect to receive cash? What is the floor premium?