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5#
发表于 2011-7-13 13:04
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This is how you calculate the cap on an inverse floater from a support tranche.
Let's say you have a support tranche of $500,000 notional principle that gets a 6% fixed interest rate.
Let's also assume you split the tranche up into a $450,000 floater tranche of LIBOR + 1% and another separate tranche of the remaining principal, $50,000, and let's say you need to calculate this interest rate.
How do you do it? First take a deep breath. It's really easy folks. Finquiz had a question on it. Just use simple algebra...and no, I did not get it right, but I will from here on out!
Consider this: the weighted interest rate of the floater + the weighted interest rate of the inverse floater = 6% x $500,000
LIBOR + 0.01(450,000) - LIBOR + x(50,000) = 0.06(500,000)
4500 + 50,000x = 30,000
x = 51%
If you want a formula for it, try this:
k = inverse floater dollar interest due when reference rate (LIBOR, Treasuries, etc) for floater is zero / principal for inverse floater |
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