If the NexTec floater had a 3% cap, the value of this embedded cap for the issuer would be closest to:
1.0.49.
2.1.09.
3.1.57
I think it’s 1) 0.49
For the floater with no cap, it will trade at par because the coupon rate for each period is the same as the discount rate. If you really want to do the math:
uncapped value
V_u=\frac{2.5}{1.025}+\frac{0.5}{1.025}\left(\frac{103.8695}{1.038695}+\frac{103.1681}{1.031681}\right)=\frac{2.5}{1.025}+\frac{100}{1.025}=\frac{102.5}{1.025}=100
For the capped floater, the coupon rate is 3 in the second period for both paths
V_c=\frac{2.5}{1.025}+\frac{0.5}{1.025}\left(\frac{103}{1.038695}+\frac{103}{1.031681}\right)=99.51217262
The difference is V_u-V_c=100-99.51217262=0.48782737 which is the value of the cap
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