Question: In a cap with quarterly reset dates, the cap rate is 3.5% per annum and the notional principal is $1 million. Suppose that the LIBOR

In a cap with quarterly reset dates, the cap rate is 3.5% per annum and the notional principal is $1 million. Suppose that the LIBOR rate is 4.0% per annum for a particular 3-month period. What is the approximate payoff at the end of the 3 months?

Select one:

a. $10,000

b. $5,000

c. $2,500

d. $1,250

e. None of the above

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