How many caplets in a cap?
The price of the cap is the sum of the price of each of the seven caplets. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
How do you price interest rate caps?
A floor rate is the minimum rate a borrower will be charged. Alternatively, a ceiling rate protects the borrow and caps the upper limit at which a borrower can be charged. A floor rate protects the lender, as the lender can always expect to collect a minimum amount of interest.
What is a floor rate on a loan?
1 Interest rate swaptions are quoted in terms of the implied volatilities of the forward swap or LIBOR rates which are their underlying assets.