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For problems 78, use this binomial interest rate tree. 7) What would be the cost for a $1M,6% interest rate cap? 8) At time 3,
For problems 78, use this binomial interest rate tree. 7) What would be the cost for a $1M,6% interest rate cap? 8) At time 3, what is the most TOTAL money you could have in your pocket/bank account if you bought this interest rate cap. Assume you borrow the money needed to buy the cap with a variable, interest-only loan that you pay back at the end. (You pay the interest payments as they come due or borrow more money to pay them.)
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