In a Cap with Quarterly Reset Dates, the Cap Rate

Multiple Choice

In a cap with quarterly reset dates, the cap rate is 3.5% per annum and the notional principal is $1 million. Suppose that the LIBOR rate is 4.0% per annum for a particular 3-month period. What is the approximate payoff at the end of the 3 months?

A) $10,000
B) $5,000
C) $2,500
D) $1,250