please explain. 35

Use the following information to price a three-year collar by purchasing an out-of-the-money cap and writing an in-the-money floor. Assume a binomial options pricing model with an equal probability of interest rates increasing 2 percent or decreasing 2 percent per year. Current rates are 4 percent, the cap rate is 7 percent, and the floor rate is 4 percent The notional value is $1 million. All interest payments are annual payments as a percent of notional value, and all payments are made at the end of year 1 and the end of year 2