Interest Rate Floor
For example, assume that an investor is securing a floating rate loan and is looking for protection against lost income that would arise if interest rates were to decline. Suppose the floor rate is 8% and that on a particular day, the rate on the investor's floating-rate loan of $1 million is 7%. The floor provides a payoff of $10,000 (($1 million *.08) - ($1 million*.07)).
Investment dictionary. Academic. 2012.
Look at other dictionaries:
interest rate floor — The opposite of an interest rate cap. An arrangement under which the seller, in return for a premium, will pay to the buyer the difference between the specified floor rate and the lower variable rate, should the variable rate fall below that… … Law dictionary
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Interest rate floor — An interest rate agreement in which payments are made when the reference rate falls below the strike rate. The New York Times Financial Glossary … Financial and business terms
interest rate floor — Fin a lower limit on a rate of interest, for example, in an adjustablerate mortgage … The ultimate business dictionary
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interest rate collar — Under a collar arrangement, both an interest rate cap and an interest rate floor are sold simultaneously. The buyer ensures that if interest rates move outside an agreed range, it will receive payment from the seller. Related links collar… … Law dictionary
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prime interest rate — Usually defined as the lowest rate of interest from time to time charged by a specific lender to its most credit worthy customers for short term unsecured loans. The prime rate is often used as the floor or base rate for setting interest rates on … Black's law dictionary