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Calculation of Interest Rate Collars

This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.

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January 21, 2022 at 8:27 am #647182
Krina23
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While calculating the premium on interest rate collars, why do we not take the quarterly premium value?
i.e., if the premium is 0.21%, why do we take it as 0.21 and not (0.21/4) = 0.0525%?
https://www.youtube.com/watch?v=DqQpHaWtNf8
At 22:40
January 21, 2022 at 10:38 am #647196
John Moffat
Keymaster
- Topics: 56
- Replies: 51585
It is because here we are calculating the effective maximum and minimum annual interest rates, and the premium is quoted as an annual rate (even though the actual $ interest paid and the actual $ premium paid will not be being paid for a full year).
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