Question
I need help figuring floating rate loan percentages. I'm not under standing how the LIBOR(t-1) + spread calculation is solved. The instructions are confusing to
I need help figuring floating rate loan percentages. I'm not under standing how the LIBOR(t-1) + spread calculation is solved. The instructions are confusing to me which are:
To solve this problem we will calculate the floating rate of interest and then see if it exceeds the ceiling or falls below the floor. The floating rate of interest on the loan for any given week is equal to the LIBOR rate for the previous week (in the figure above) plus the spread of 24 basis points (bp) as long as the resulting rate does not exceed the ceiling rate of 2.26% or fall below the floor rate of 1.65%. If LIBOR (t1) (that is, the LIBOR on the previous week) plus the 24bp spread should rise above the ceiling, then the rate will remain equal to the ceiling rate until the index falls back below the ceiling. Similarly, should LIBOR (t1) plus 24 bp fall below the floor rate, then the loan rate will be set equal to the floor until the index rises back above the floor.
The problem info is:
The loan called for a floating rate that was 28 basis points (0.28 percent) over an index based on LIBOR. In addition, the loan adjusted weekly based on the closing value of the index for the previous week and had a maximum annual rate of 2.17 percent and a minimum of 1.75
Date
LIBOR
Week 1
1.96
1.96%
Week 2
1.65
1.65%
Week 3
1.53
1.53%
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