You have sold a $10,000 notional cap consisting of a single caplet with a strike of 6% for a six-month underlying period.All interest rates are computed based on the 30/360 convention.At maturity of the cap period,the underlying interest rate is 7%.What is the net cash flow to you on maturity?
A) $- \$ 50.00$
B) $+ \$ 48.31$
C) $- \$ 48.31$
D) $+ \$ 46.73$

Question

Quizplus · Accepted Answer

The caplet pays when the underlying rate exceeds the strike rate. The payoff is $(7\% - 6\%) \times 10,000 \times \frac{180}{360} = \$50$. Since you sold the caplet, you pay this amount, resulting in a net cash flow of $- \$ 50.00$.

You Have Sold a $10,000 Notional Cap Consisting of a Single