Schweser practice exam 3 pm: how to solve it? derivative.

dont look at the number of years for floorlets and caplets in this context… its only asking the payoff amount. date contact initiated assume 1st jan 2000 . then at end of year 2 (31st december 2002 or 1st January 2003) it turns out that the LIBOR is 5.8% (this would be the 1 year interest rate throughout 2003) instead of 6% (the option on the floor). so 6%-5.8% X notional principal is $60,000… but since its asking for the value of at the end of year 2002. Then we need to discount it by the LIBOR rate 1.058^1(by one period of the LIBOR rate used in 2003) which gives 56,111. hope this helps…