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Suppose that a 1-year cap has a cap rate of 6 percent and a notional amount of $500 million. The frequency of settlement is quarterly, and the reference rate is 3-month LIBOR. The contract begins on January 1 and the settlements are on April 1, July 1, October 1, and the following January 1. Given the indicated LIBOR rates on those dates in the table below, what is the maximum payoff and on what date did it occur on? (The days in each settlement period have been provided.)
A. $191,666 on Oct. 1. B. $189,583 on July 1. C. $187,500 on April 1. |