A Series of 1-Year Interest Rate Caplets for 4 Years

question 2

Multiple Choice

A series of 1-year interest rate caplets for 4 years have values of $0.05,$0.07,$0.08,and $0.10,respectively.What is the value of a 3-year interest rate cap?

• A) $0.08
• B) $0.12
• C) $0.20
• D) $0.30

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Definitions:

Lump-Sum Tax

A tax that is a fixed amount, no matter the change in circumstance of the taxed entity.

Marginal Income Tax Rate

The rate at which the last dollar of a taxpayer’s income is taxed, indicating the percentage of an additional dollar of income that will be paid in taxes.

Tax Schedule

A chart or table that displays tax rates applied to various income levels, dictating how much tax is owed based on income.

Proportional Tax

A tax system where the tax rate remains constant regardless of the amount on which the tax is levied.