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A firm purchases a one-year cap with a strike rate of 4%, a notional principal of $3 million, and semiannual settlement. The reference rate at the initiation of the cap is 5%, falls to 4.5% at the next settlement and then to 4% one year after the cap’s initiation. The total payoffs (without discounting) over the maturity of the cap would be: A. $25,500. B. $22,792. C. $7,583. |