Lesson 9 of 25 · 6 min

A rate move you can see the day it is published

Twenty-five basis points on the index is twelve dollars and eighty-three cents a day on this opening balance.

On 12 March the sample's one-month term funding rate prints 5.37 percent after 5.12 percent. The spread is still 1.85 percent, so the facility rate moves from 6.97 percent to 7.22 percent on that day. Both index prints are public the day they are published. The letter dated 2 April restates the reset; it is not the first place the reset exists.

On the March opening of $1,847,220.00, one day at 6.97 percent Act/360 is $1,847,220.00 × 0.0697 ÷ 360 = $357.64. One day at 7.22 percent is $1,847,220.00 × 0.0722 ÷ 360 = $370.47. The difference is $12.83 a day. Twenty days at the new rate rather than the old one add $256.56 to the month, which is the gap between $11,343.47 actually charged and $1,847,220.00 × 0.0697 × 31 ÷ 360 = $11,086.91 that a full month at the old rate would have produced.

Seeing the index on the day it prints lets the daily increment change on the day it changes. Waiting for the letter leaves twenty days of the new increment looking like twenty days of the old one. The figure that moves between statements, on a reset day, is that $12.83.

A published index plus a known spread is a facility rate. The letter is a second printing of a sum that was already public.

Key terms

Published reset: An index print that, added to a known spread, changes the facility rate on the day the index is published.
Daily increment: Balance × rate ÷ 360 under Act/360. On this March opening it is $357.64 at 6.97 percent and $370.47 at 7.22 percent.

Worked example

The 12 March reset in dollars per day

Opening balance $1,847,220.00, spread 1.85 percent, index 5.12 percent then 5.37 percent, Act/360, 11 days then 20 days.

Old facility rate: 6.97%
New facility rate: 7.22%
Daily increment before the reset: $357.64
Daily increment after the reset: $370.47
Extra per day: $12.83
Extra over 20 days: $256.56

Twenty-five basis points on the index is $12.83 a day and $256.56 over the rest of March, visible the day the index prints.

Check yourself

The index prints 25 basis points higher on 12 March. The spread is unchanged at 1.85 percent. On $1,847,220.00 Act/360, what is the change in the daily increment?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.