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Swaps and Swaptions - Interest Rate Caps Floors Collars
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Swaps and Swaptions - Interest Rate Caps - Example
SERIES
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2 days ago
Category
🦄
Creativity
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00:00
So let's discuss the example for interest rate caps.
00:06
A company has borrowed 1000 lakhs on floating basis. Floating basis 3 years.
00:13
The interest rates are reset every year.
00:18
The spread over Libar is 25 basis points. Libar plus 25 basis points.
00:32
Call percentage. 10 percentage 10.25 percentage will be taken.
00:38
The company buys 3 year cap on a 1 year Libar with a strike rate of 9 percentage.
00:46
Libar one of the 9 percentage will be managed.
00:49
If you want to make a strike rate, strike rate.
00:56
9 percentage. Cap.
01:00
Right. Having the same face value of it is 1000 lakhs.
01:05
The cap carries a premium of 2 percentage of the face value or 20 lakhs.
01:11
The premium is 2 percentage.
01:15
Or 20 lakhs.
01:17
1000 lakhs to be 2 percentage of the face value is 20 lakhs.
01:20
That's why you mean it is 20 lakhs.
01:21
2 percentage on the value.
01:23
That's simply 20 lakhs.
01:25
Current 1 year Libar rate is 9 percentage.
01:29
1st year Sine.
01:30
9 percentage.
01:31
1st year 2nd year 3rd year 3rd year 9.5.
01:33
2nd year 8.5.
01:34
3rd year 10 percentage.
01:35
What is the cash flow from cap each year?
01:36
Oh, cash flow from cap each year.
01:37
Oh, cash flow is 8.5.
01:38
2nd year 8.5.
01:39
3rd year 10 percentage.
01:40
What is the cash flow from cap each year?
01:41
Oh, cash flow is 8.5.
01:42
So, year year 1, year 2, year 3.
01:54
Libar rate is 9.5 percentage.
01:59
Here is 8.5 percentage.
02:01
Here is 10 percentage.
02:04
Okay.
02:05
Cash inflow from, cash inflow from caps.
02:10
Caps inflow.
02:11
Epa over?
02:12
Strike rate on the 9 percentage.
02:14
So, if it is more than 9 percentage, we will get.
02:19
So, 1st scenario, 0.5 percentage.
02:22
0.5 percentage.
02:25
Apa 1000 lakhs irkku 0.5 percentage puttikna 5 lakhs will be inflow of cash.
02:36
2nd year 8.5.
02:38
Strike rate akkur liuk kambi airukku we don't get anything.
02:40
3rd year 10.
02:42
Strike rate anna 9 ikku meela 1 percentage irukkabin chun akkur.
02:46
1 percentage on the face value 1000 lakhs puttikna avada varudhu 10 lakhs vorum.
02:53
Here is caps nal vandu cash inflow.
02:55
Caps nal vandu cash inflow.
02:56
Caps nal vandu cash inflow.
02:58
Caps nal vandu cash inflow.
02:59
Okay.
03:00
Cap nal vandu cash inflow in percentage in amount.
03:05
Right.
03:09
Here is cash inflow.
03:11
Cap premium cuttikna engel liya.
03:14
That is the cash outflow then.
03:19
20 lakhs is the outflow.
03:22
20 lakhs is the outflow for 3 years. You can amortize over the 3 years period to go to club.
03:26
Year on year, 6.67 lakhs, 6.66 lakhs, 6.66 lakhs, this is the outflow for interest.
03:42
Cash outflow for interest. Interest with outflow? Are you interested?
03:48
Interest rate, Libar rate, basis points cut in 0.25.
03:52
JASI, 9.75% you cut.
03:56
First year. Second year, 8.5.25% you cut.
04:06
10.25% you cut.
04:10
Cash outflow in terms of rupees, interest outflow.
04:16
Interest outflow. Interest outflow. Interest outflow.
04:20
Percentage, this is rupees.
04:24
1,000 to 9.75% you cut.
04:30
97.5 for the first case.
04:32
Lakhs.
04:34
This is 87.5 lakhs.
04:38
This is 102.5 lakhs.
04:42
Now, my question is, what is the cash outflow year on year?
04:48
First year, 97.5 outflow plus 6.67 outflow, give inflow.
04:56
Now, we have to subtract outflow.
04:58
97.5 plus premium outflow.
05:02
That is actually the first year.
05:04
Year on year, we have to assume that.
05:06
So, 97.5 outflow, 6.67 outflow.
05:12
This is inflow.
05:14
5 subtracting, the ultimate value being.
05:16
99.17 lakhs.
05:20
Second year, 87.5, 6.67.
05:22
One percent inflow,
05:24
94.17 is the outflow.
05:28
That is the answer.
05:30
That is the answer.
05:32
102.5 plus 6.66 minus 10.5.
05:36
10 lakhs.
05:38
99.17.
05:40
So, this is the answer.
05:42
Rate of interest,
05:44
100% or 20%
05:46
We have to go to 99.17.
05:48
We have to go to 99.17.
05:50
We have to go to 99.17.
05:52
So, this is the answer.
05:54
Outflow is the answer.
05:56
Okay.
05:58
How much is that?
06:00
Yeah, last one.
06:02
Loan or repayment.
06:04
You got to stop.
06:06
This is the logic of caps.
06:10
This is the logic of caps.
06:12
Come on, make a note of it.
06:26
You've got to do something.
06:28
Well, I talked over and terminate the supray.
06:32
Googleurs are awesome.
06:34
You shut up.
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