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You have a $20m 3 year loan outstanding at Libor +50 bps. You buy a 4% Libor cap for 1%. What is the annualized cost
You have a $20m 3 year loan outstanding at Libor +50 bps. You buy a 4% Libor cap for 1%. What is the annualized cost of the cap? Assume your bank agrees to let you pay the annualized cost instead of the upfront cost, what is your net cost of money for the quarter if Libor reaches 5%. What are the components of the cost? Assume 3 year swap rates are 3%.
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