";
// Update Floating Rate for next year based on drift
currentFloatingRate += driftRate;
// Prevent negative rates if desired, though negative rates exist in finance.
// We will allow them but maybe keep it reasonable visually.
}
// 5. Update UI
document.getElementById("totalFixedResult").innerText = totalFixedFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("totalFloatingResult").innerText = totalFloatingFlow.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById("scheduleBody").innerHTML = scheduleHTML;
// Analysis Logic
var analysis = "";
var netDiff = totalFixedFlow – totalFloatingFlow;
if (netDiff > 0) {
analysis = "Over " + durationYears + " years, the Floating Rate option results in lower total cash flow by " + netDiff.toLocaleString(undefined, {maximumFractionDigits: 0}) + ". This suggests that unless the floating rate spikes significantly higher than your drift prediction (" + driftRate + "%/year), staying floating is more economical.";
} else if (netDiff < 0) {
analysis = "Over " + durationYears + " years, the Fixed Rate option results in lower total cash flow by " + Math.abs(netDiff).toLocaleString(undefined, {maximumFractionDigits: 0}) + ". The floating rate starts or grows too high compared to the fixed lock.";
} else {
analysis = "Both options result in the exact same cash flow over the duration.";
}
document.getElementById("analysisText").innerHTML = analysis;
document.getElementById("results").style.display = "block";
}
Understanding Fixed vs Floating Rate Calculations
In financial modeling, treasury management, and investment analysis, comparing a Fixed Rate against a Floating (Variable) Rate is a critical exercise. This calculation helps in determining the "Swap" value or simply deciding between two cash flow structures. Unlike a simple loan payment calculator, this tool focuses on the total cost of funds or investment yield accumulation over time, considering the volatility of market indices.
How the Calculation Works
The core of the comparison lies in the behavior of the reference percentage applied to the Notional Base Amount.
Fixed Leg: The rate remains constant throughout the duration. The cash flow is predictable: Notional Amount × Fixed Rate × Time.
Floating Leg: The rate resets periodically (e.g., annually) based on a market benchmark (like SOFR, EURIBOR, or a Prime Rate). The cash flow varies: Notional Amount × (Current Floating Rate) × Time.
Key Parameters Explained
Notional Base Amount
This is the theoretical principal on which calculations are based. In an Interest Rate Swap, this money generally doesn't change hands; it is merely used to calculate the interest payments exchanged.
Drift / Annual Rate Shift
Floating rates are rarely static. This parameter allows you to model a "rising rate environment" or a "falling rate environment." If you expect the central bank to raise rates by 0.5% per year, you would enter 0.5 in the Annual Rate Shift field.
Cash Flow Difference
The calculator computes the Net Settlement required. If the Fixed calculation results in 5,000 and the Floating calculation results in 4,500, the difference (500) represents the savings or cost opportunity of choosing one over the other.
Applications of This Calculation
Corporate Treasury: Companies use this math to decide whether to issue fixed-coupon bonds or floating-rate notes.
Investment Portfolio: Investors compare buying a fixed government bond versus a floating-rate corporate bond to hedge against inflation.
Derivatives Trading: This logic underpins Interest Rate Swaps, where two parties exchange the difference between a fixed and floating stream of payments.
Mathematical Formula
The accumulated value ($V$) for a fixed rate is simple linear accumulation (assuming non-compounding cash flows for swaps):
V_fixed = P × r_fixed × t
For the floating rate, the value is the sum of varying periods:
V_float = Σ (P × r_float(i) × 1) Where r_float(i) changes each period based on the drift parameter.