infinitybenzo

deriv108 Wrote:
-------------------------------------------------------
> I don't know why I still have questions on
> Options.
>
> Here is another:
>
> When we calculate the effective rate for a
> borrower(loan+call), why is the Payoff of the
> interest rate Call option received at the end of
> the loan(instead of the expiration date of the
> Call option itself)?

Isn't it because you enter into a contract giving the right, but not the obligation, to buy or sell a financial instrument paying a fixed rate of interest at a specified price and future date.

In December you enter into a contract that you might buy a financial instrument in February whose interest you will pay in April. You can enter that contract in Feb too but the interest rates might not be in your favor.