I still don`t quite understand why you need STEEM, so I "powered up".
Steem (not powered up) exists only for short term liquidity and trading purposes. If you want to invest longer term then you definitely want to power up, since earns "interest" (literally anti-dilution payments) in more Steem and regular powered-down Steem does not. Over time Steem Power will outperform Steem by an increasingly wide margin.
Is it correct that holding STEEM Dollar pays you 10% p.a. interest? Where does that money come from and is there no cap, i.e. no maximal amount that can be invested?
Yes it is correct.
It comes from the same place all steem dollars come from, the blockchain creates it according to programmed rules. There is no cap, although the supply of steem dollars in existence is limited (they are only created to pay posting rewards at a rate that depends on the market value of steem, and from interest).
The 10% rate is not guaranteed to remain the same in the future. It may be adjusted as needed to help maintain price stability of steem dollars.