An issuer in the Eurozone wants to sell a three-year fl oating-rate note at par with an annual coupon based on the 12-month Euribor + 300 bps. Because the 12-month Euribor is currently at an historic low and the issuer wants to protect itself against a sudden increase in interest cost, the issuers advisers recommend increasing the credit

spread to 320 bps and capping the coupon at 5.50%. Assuming an interest rate vol- atility of 8%, the advisers have constructed the following binomial interest rate tree:

Year 0

0.5430%

Year 1

2.0908% 1.7817%

Year 2 2.6865% 2.2893% 1.9508%

Th e value of the capped fl oater is closest to: A . 92.929. B . 99.916. C . 109.265.