PAYMENTS ON CAP

An investor purchases a cap on 5/1/20 for an initial premium of 1.75% of the notional amount. The terms of the cap include the following: (i) the notionalamount is $100 million; (2) the reference rate is 3-month LIBOR; (3) the maturity of the contract is 1 year; (4) cap payments are made quarterly;(5) the strike price is 2.2500%; and (6) the payment is based on an actual/360 day count. LIBOR for the 8/1/20, 11/1/20, 2/1/21 and 5/1/21 LIBORreset dates is 1.7575%, 2.2825%, 2.7175% and 3.1250%, respectively.

(a) What is the amount of the initial premium payment? Which party pays?

(b) What is the amount of each cap payment? Which party pays?

show formula.