Interest Rate Cap

Principal Amount $10,000,000 Cap Cost 1.90%

Term (in years) 5 Total Cap Cost $190,000
Index Reset/yr. 4 Cap Rate 7.00%

Interest Cap Cap Fee Net Interest Effective Unhedged

Interest Rate Cap Rate
Year Qtr. Expense Receipts Amortized Expense Rate Rate

1 1 3.00% 7.00% $75,000 0 9,500 $84,500 3.38% 3.00%

2 3.50% 7.00% $87,500 0 9,500 $97,000 3.88% 3.50%
3 4.00% 7.00% $100,000 0 9,500 $109,500 4.38% 4.00%
4 4.50% 7.00% $112,500 0 9,500 $122,000 4.88% 4.50%
2 1 5.00% 7.00% $125,000 0 9,500 $134,500 5.38% 5.00%
2 5.50% 7.00% $137,500 0 9,500 $147,000 5.88% 5.50%
3 6.00% 7.00% $150,000 0 9,500 $159,500 6.38% 6.00%
4 6.75% 7.00% $168,750 0 9,500 $178,250 7.13% 6.75%
3 1 7.00% 7.00% $175,000 0 9,500 $184,500 7.38% 7.00%
2 7.50% 7.00% $187,500 12500 9,500 $184,500 7.38% 7.50%
3 8.25% 7.00% $206,250 31250 9,500 $184,500 7.38% 8.25%
4 8.75% 7.00% $218,750 43750 9,500 $184,500 7.38% 8.75%
4 1 9.50% 7.00% $237,500 62500 9,500 $184,500 7.38% 9.50%
2 10.00% 7.00% $250,000 75000 9,500 $184,500 7.38% 10.00%
3 9.00% 7.00% $225,000 50000 9,500 $184,500 7.38% 9.00%
4 8.50% 7.00% $212,500 37500 9,500 $184,500 7.38% 8.50%
5 1 8.75% 7.00% $218,750 43750 9,500 $184,500 7.38% 8.75%
2 7.00% 7.00% $175,000 0 9,500 $184,500 7.38% 7.00%
3 6.00% 7.00% $150,000 0 9,500 $159,500 6.38% 6.00%
4 5.50% 7.00% $137,500 0 9,500 $147,000 5.88% 5.50%

Total $3,350,000 $356,250 $190,000 $3,183,750

Formula to determine cap receipts:

If interest rate > cap rate, cap receipt = (interest rate - cap rate) * principal/4
If interest rate <= cap rate, cap receipt = 0
 Interest Rate Cap

11.00%
10.00%
9.00%
8.00% Cap Rate
Interest Rate
7.00%
Effective Rate
6.00%
Net Interest Rate
5.00%
4.00%
3.00%
1 2 3 4 5
Year
 Cap Payoff per Quarter
$60,000

$50,000

$40,000

$30,000
Net Payoff
$20,000

$10,000

$0
1% 7% 8% 9% 10%

What is cap payoff if interest rate is 5%? 0

What is cap payoff if interest rate is 8%? 1/4 x (8%-7%) x 10,000,000 = $25,000

What is cap payoff if interest rate is 9%? 1/4 x (9%-7%) x 10,000,000 = $50,000

What does this look like? A cap is a bundle of call options.

Interest Rate Floor

Principal Amount $100,000,000 Floor Cost 0.75%

Term (in years) 3 Total Floor Cost $750,000
Index Reset/yr. 4 Floor Rate 5.00%

Interest Interest Floor Floor Floor Fee Net Interest Effective Unhedged
Year Qtr. Rate Income Rate Receipts Amortized Income Rate Rate

1 1 9.50% $2,375,000 5.00% $0 $62,500 $2,312,500 9.25% 9.50%

2 8.25% $2,062,500 5.00% $0 $62,500 $2,000,000 8.00% 8.25%
3 7.00% $1,750,000 5.00% $0 $62,500 $1,687,500 6.75% 7.00%
4 6.00% $1,500,000 5.00% $0 $62,500 $1,437,500 5.75% 6.00%
2 1 5.00% $1,250,000 5.00% $0 $62,500 $1,187,500 4.75% 5.00%
2 3.50% $875,000 5.00% $375,000 $62,500 $1,187,500 4.75% 3.50%
3 3.00% $750,000 5.00% $500,000 $62,500 $1,187,500 4.75% 3.00%
4 3.25% $812,500 5.00% $437,500 $62,500 $1,187,500 4.75% 3.25%
3 1 4.00% $1,000,000 5.00% $250,000 $62,500 $1,187,500 4.75% 4.00%
2 5.00% $1,250,000 5.00% $0 $62,500 $1,187,500 4.75% 5.00%
3 5.50% $1,375,000 5.00% $0 $62,500 $1,312,500 5.25% 5.50%
4 6.00% $1,500,000 5.00% $0 $62,500 $1,437,500 5.75% 6.00%

Total $16,500,000 $1,562,500 $750,000 $17,312,500

Formula to determine floor receipts:

If interest rate < floor rate, floor receipt = (floor rate - interest rate) * principal/4
If interest rate >= floor rate, floor receipt = 0
 Interest Rate Floor

10.00%

9.00%

8.00%
Floor Rate
7.00% Interest Rate
6.00% Effective Rate
Net Interest Rate
5.00%

4.00%

3.00%
1 2 3
Year
 Floor Payoff per Quarter
$1,200,000

$1,000,000

$800,000

$600,000

$400,000

$200,000

$0
1% 2% 3% 4% 5% 6% 7%

What is floor payoff if interest rate is 7%? 0

What is floor payoff if interest rate is 4%? 1/4 x (5%-4%) x 100 million = $250,000

What is floor payoff if interest rate is 3%? 1/4 x (5%-3%) x 100 million = $500,000

What does this look like? A floor is a bundle of put options.

Interest Rate Collar

Principal Amount $50,000,000 Collar Cost 2.10%

Term (in years) 4 Total Collar Cost 1,050,000
Index Reset/yr. 4 Cap Rate 7.00%
Floor Rate 5.00%

Interest Cap Floor Interest Cap Floor Cap Fee Net Interest Effective Unhedged
Year Qtr. Rate Rate Expense Receipts Payments Amortized Expense Rate Rate

1 1 5.25% 7.00% 5.00% $656,250 0 0 $65,625 721,875 5.78% 5.25%

2 5.75% 7.00% 5.00% $718,750 0 0 $65,625 784,375 6.28% 5.75%
3 6.00% 7.00% 5.00% $750,000 0 0 $65,625 815,625 6.53% 6.00%
4 7.00% 7.00% 5.00% $875,000 0 0 $65,625 940,625 7.53% 7.00%
2 1 8.25% 7.00% 5.00% $1,031,250 156250 0 $65,625 940,625 7.53% 8.25%
2 8.75% 7.00% 5.00% $1,093,750 218750 0 $65,625 940,625 7.53% 8.75%
3 10.00% 7.00% 5.00% $1,250,000 375000 0 $65,625 940,625 7.53% 10.00%
4 9.75% 7.00% 5.00% $1,218,750 343750 0 $65,625 940,625 7.53% 9.75%
3 1 9.00% 7.00% 5.00% $1,125,000 250000 0 $65,625 940,625 7.53% 9.00%
2 7.00% 7.00% 5.00% $875,000 0 0 $65,625 940,625 7.53% 7.00%
3 6.00% 7.00% 5.00% $750,000 0 0 $65,625 815,625 6.53% 6.00%
4 5.75% 7.00% 5.00% $718,750 0 0 $65,625 784,375 6.28% 5.75%
4 1 5.00% 7.00% 5.00% $625,000 0 0 $65,625 690,625 5.53% 5.00%
2 4.00% 7.00% 5.00% $500,000 0 -125000 $65,625 690,625 5.53% 4.00%
3 4.25% 7.00% 5.00% $531,250 0 -93750 $65,625 690,625 5.53% 4.25%
4 5.00% 7.00% 5.00% $625,000 0 0 $65,625 690,625 5.53% 5.00%

Total $13,343,750 $1,343,750 $1,050,000 $13,268,750

Formula to determine cap receipts and floor payments:

If interest rate > cap rate, cap receipt = (interest rate - cap rate) * principal/4
If interest rate < floor rate, floor payment = (floor rate - interest rate) * principal/4
If interest rate <= cap rate and >= floor rate = 0
 Interest Rate Collar

11.00%

10.00%

9.00%

8.00%
Cap Rate
Floor Rate
7.00%
Interest Rate
6.00%
Effective Rate
5.00%

4.00%

3.00%
1 2 3 4
Year
Interest Rate Corridor

Principal Amt. $20,000,000 Corridor Cost 2.30%

Term (in years) 4 Total Cost $460,000
Index Reset/yr. 4 Cap Rate 7.00%
Corridor Rate 9.00%

Interest Cap Corridor Interest Corridor Cap Fee Net Interest Effective Unhedged
Year Qtr. Rate Rate Rate Expense Receipts Amortized Expense Rate Rate

1 1 4.25% 7.00% 9.00% $212,500 0 $28,750 $241,250 4.83% 4.25%

2 7.50% 7.00% 9.00% $375,000 25000 $28,750 $378,750 7.58% 7.50%
3 8.50% 7.00% 9.00% $425,000 75000 $28,750 $378,750 7.58% 8.50%
4 8.25% 7.00% 9.00% $412,500 62500 $28,750 $378,750 7.58% 8.25%
2 1 6.25% 7.00% 9.00% $312,500 0 $28,750 $341,250 6.83% 6.25%
2 6.50% 7.00% 9.00% $325,000 0 $28,750 $353,750 7.08% 6.50%
3 7.50% 7.00% 9.00% $375,000 25000 $28,750 $378,750 7.58% 7.50%
4 8.00% 7.00% 9.00% $400,000 50000 $28,750 $378,750 7.58% 8.00%
3 1 8.50% 7.00% 9.00% $425,000 75000 $28,750 $378,750 7.58% 8.50%
2 9.25% 7.00% 9.00% $462,500 100000 $28,750 $391,250 7.83% 9.25%
3 9.50% 7.00% 9.00% $475,000 100000 $28,750 $403,750 8.08% 9.50%
4 9.75% 7.00% 9.00% $487,500 100000 $28,750 $416,250 8.33% 9.75%
4 1 8.25% 7.00% 9.00% $412,500 62500 $28,750 $378,750 7.58% 8.25%
2 7.50% 7.00% 9.00% $375,000 25000 $28,750 $378,750 7.58% 7.50%
3 6.25% 7.00% 9.00% $312,500 0 $28,750 $341,250 6.83% 6.25%
4 5.50% 7.00% 9.00% $275,000 0 $28,750 $303,750 6.08% 5.50%

Total $6,062,500 $700,000 $460,000 $5,822,500

Formula to calculate corridor receipts:

If interest rate > cap rate and interest rate < corridor rate, corridor receipts = (interest rate - cap rate) * principal/4
If interest rate >= corridor rate, corridor receipt = (corridor rate - cap rate) * principal/4
If interest rate <= cap rate, corridor receipts = 0
 Interest Rate Corridor

11.00%

10.00%

9.00%

8.00%
Cap Rate
Corridor Rate
7.00%
Interest Rate
6.00%
Effective Rate
5.00%

4.00%

3.00%
1 2 3 4
Year
Participating Rate Agreement or Participating Cap

Principal Amt. $50,000,000 Cap Rate 7.00%

Term (in years) 3 Participating Rate 45.00%
Index Reset/yr. 4

Interest Cap Interest PRA Receipts/ Net Interest Effective Unhedged

Year Qtr. Rate Rate Expense (Payments) Expense Rate Rate

1 1 4.25% 7.00% -$531,250 -$154,688 $685,938 5.49% 4.25%

2 4.50% 7.00% -$562,500 -$140,625 $703,125 5.63% 4.50%
3 5.75% 7.00% -$718,750 -$70,313 $789,063 6.31% 5.75%
4 6.50% 7.00% -$812,500 -$28,125 $840,625 6.73% 6.50%
2 1 7.00% 7.00% -$875,000 $0 $875,000 7.00% 7.00%
2 7.75% 7.00% -$968,750 $93,750 $875,000 7.00% 7.75%
3 8.00% 7.00% -$1,000,000 $125,000 $875,000 7.00% 8.00%
4 9.25% 7.00% -$1,156,250 $281,250 $875,000 7.00% 9.25%
3 1 9.75% 7.00% -$1,218,750 $343,750 $875,000 7.00% 9.75%
2 8.00% 7.00% -$1,000,000 $125,000 $875,000 7.00% 8.00%
3 7.00% 7.00% -$875,000 $0 $875,000 7.00% 7.00%
4 6.25% 7.00% -$781,250 -$42,188 $823,438 6.59% 6.25%

Total -$10,500,000.00 $532,813 -$9,967,187.50

Formula to determine Pra receipts/payments:

If interest rate < cap rate, Pra receipts/payments = ((cap rate - interest rate) * principal/4) * participation rate
If interest rate >= cap rate, Pra receipts/payments = (interest rate - cap rate) *principal/4
 Participating Rate Agreement or Participating
Cap

11.00%
10.00%
9.00%
8.00% Cap Rate
7.00% Interest Rate
6.00% Effective Rate
5.00%
4.00%
3.00%
1 2 3
Year