Darien

Thanks rus1bus...And welcome back...I think I got it now...I was being thrown off by the "no net effect statement" but they are right...if say rates fall below the strike of the floor say 3% vs 5% strike...you will pay interest on the 3% actual rate BUT you also pay the difference between 5 and 3 since you are short the floor, and it is in the money. So you end up paying 5% anyways. Same logic applies when rates go above the cap strike. By no net effect I thought they meant that you just pay the actual borrowing rate (LIBOR).

thanks very much buddy and good luck on your studying...we are almost there