You bought an option that limits the interest rate on a future six-month loan to, at most,

Question:

You bought an option that limits the interest rate on a future six-month loan to, at most, 10 percent p.a.
(a) If, at the beginning of the six-month period, the interest rate is 11 percent, what is the expiration value of this option?
(b) What is the option's expiration value if the interest rate turns out to be 8 percent?