Lizard national bank purchases a three-year interest rate, Ask an Expert

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Lizard National Bank purchases a three-year interest rate cap for a fee of 2 percent of notional principal valued at $50 million, with an interest rate ceiling of 7 percent and LIBOR as the index representing the market interest rate. Assume that LIBOR is expected to be 4 percent, 4.5 percent, and 5 percent at the end of each of the next three years, respectively. The total payments received (or paid) by Lizard, including the initial fee, are $____.

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