Hi Guys, Any help with this one would be awesome.
I think it requires some algebra or something.
If I am looking at a $1,000,000 loan. The fixed rate is 7.34% the variable is 6.03%. If I fix half and half (half fixed, half floating) the average rate is 6.68% (7.34% + 6.03% divided by 2 = 6.68%)
What percentage (instead of 50:50) of fixed and floating do I need to get to make the average rate 6.305%
Obviously it will need to be a greater percentage in the floating (6.03%) portion as it is lower and will bring the average rate down to the desired 6.305%.
So say we had a 25:75 fixed and floating split, the average rate would be 7.34 x 0.25 + 6.03 x 0.75 = (6.3575%) --- I could probably keep trying differnt combinations until I had the correct answer, but I want to know how to actually work it out using algebra
My stab at algebra for this ended up horribly wrong, but this is what I had
6.03(x) + 7.34(1-x) = 6.305% where x = percentage of floating portion (therefore 1 - x = fixed portion)
But I dont know where to go from here (or if i am even on the right track)
If anyone is a maths guru or knows anyone who is... please help.