In a Cap with Quarterly Reset Dates, the Cap Rate

question 18

Multiple Choice

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?

• A) $10,000
• B) $5,000
• C) $2,500
• D) $1,250

---

Definitions:

Minimum Tolerable Expectation

The lowest level of performance or outcome that is acceptable to stakeholders or within a certain context.

Wii U

A home video game console developed by Nintendo, known for its unique gamepad and a blend of handheld and console gaming features.

Value-Based Pricing Strategy

A pricing strategy where the price is set based on the perceived value of a product or service to the customer rather than on the cost of the product or competitive prices.

Market Share

The portion of a market controlled by a particular company or product.