An investor purchases a cap on 12/31/16 for an initial premium of 0.75% of the notional amount. The terms of the cap include the following:

(i) the notional amount is $10 million;

(2) the reference rate is 3-month LIBOR;

(3) the maturity of the contract is 1 year;

(4) cap payments are made quarterly;

(5) the strike price is 2.500%; and

(6) the payment is based on an actual/360 day count. LIBOR for the 3/31/17, 6/30/17, 9/30/17 and 12/31/17 LIBOR reset dates is 1.7575%, 2.2825%, 2.7175% and 3.1250%, respectively.

(a) What is the amount of the initial premium payment? Which party pays?

(b) What is the amount of each cap payment? Which party pays?