Consider a borrower whose underlying floating loan rate is L…
Consider a borrower whose underlying floating loan rate is L. He purchases a collar with a cap strike of Xc and a floor strike of Xp. Which of the following is the total payoff determined on a settlement date (meaning interest paid net of any option payoff) if L > Xc where L is the observed loan rate on that settlement date? Assume $1 borrowed and ignore the date count adjustment.