3. Assume that the formula for the coupon rates of a floater and an inverse floater are: Floater coupon rate: reference rate + 1.5% Inverse floater coupon rate: 12% - reference rate Answer the following questions:

(A)What is the coupon rate of the fixed rate collateral for these two floating rate bonds?

(B) Suppose the floor for the inverse floater is 1%. What would be the cap of the floater?

ANSWERS: A:Rate of the collateral: 6.75%

B: Cap=12.5%

NEED TO SEE THE WORK FOR HOW THIS IS DONE