A Five-Year Cap Is Reset Annually Period

question 4

Multiple Choice

A five-year cap is reset annually period. The cap rate is 3% and the notional principal is $100 million. The 12-month LIBOR interest rate for the third year proves to be 5%. Which of the following is approximately true?

• A) The resulting payoff is $2 million at the beginning of the third year
• B) The resulting payoff is $2 million at the end of the fifth year
• C) The resulting payoff is $2 million at the end of the third year
• D) The resulting payoff is $2 million half way through the third year

---

Definitions:

Limbic System

A complex system of nerves and networks in the brain, involving several areas near the edge of the cortex concerned with instinct and mood. It controls the basic emotions (fear, pleasure, anger) and drives (hunger, sex, dominance, care of offspring).

Hippocampus

A region of the brain associated with memory formation, organization, and storage, as well as playing a role in navigation and spatial orientation.

Diabetes

A chronic condition characterized by high blood sugar levels resulting from either an inability of the body to produce insulin (Type 1) or an inability to effectively use the insulin it produces (Type 2).

Hypothyroidism

A condition where the thyroid gland does not produce enough thyroid hormone, leading to a slowing down of bodily functions.