A client is interested in buying a cap on interest rates to protect their assets against rising interest rates. The cap they are looking at is an option that expires in 5 years. It can only be exercised at the end of 5 years that is, it is European style. The underlying rate that it is based upon in the 10-year United States Treasury rate. Its strike is 4%. So for 100mm in notional, its payoff will be 100mm x max (10-year Treasury 4%,0). IE, 5% rates will pay off 1mm. The cost is 3 bps (= $30,000). Use the option model techniques we have discussed in evaluating this. Use both an inside and outside view to assess whether this is good value. By good value, is the expected payoff> the cost? Please ask me for any data you would like. I am happy to send data. Part of this exercise is figuring out what data you want for inside/outside view. Recall prior discussion on this. Don't spin wheels too much - ask me questions. This is a critical thinking exercise where you apply various things from the class