A 10-year interest rate cap has a cap rate of 4%, quarterly resets, and a notional principal of $1 million.
i) How many caplets are there underlying the cap? _ _ _ _ _ _
ii) Suppose the three-month interest rate at time 2.5 years is 5.2% per annum. What is the payoff on the interest rate cap resulting from this?
_ _ _ _ __
iii) At what time measured in years from today) would the payoff in ii) be made?
_ _ _ _ _ _

Question

Quizplus · Accepted Answer

The Answer is i): 39
ii): $3000
iii) 2.75

A 10-Year Interest Rate Cap Has a Cap Rate of 4