Suppose that a 1-year interest rate cap has a cap rate of 8, Financial Management

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Suppose that a 1-year interest rate cap has a cap rate of 8

Suppose that a 1-year interest rate cap has a cap rate of 8% and a notional amount of $10 million. The frequency of settlement is quarterly and the reference rate is 3-month LIBOR. Assume that 3-month LIBOR for the next four quarters is as shown below. What is the total payoff of the interest rate cap (ignore time value of money)?

Quarter 3-Month LIBOR

1 8.7%

2 8.0%

3 7.8%

4 8.4%

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Financial Management: Suppose that a 1-year interest rate cap has a cap rate of 8

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Financial Management: Suppose that a 1-year interest rate cap has a cap rate of 8

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