Blended Rate

Blended Rate
See also

Blended Rate is the average of the rates at which each security with the extended portfolio was formerly bought. Currently it is the previous rates' average (F.J. Fabozzi 1998, s. 137).

Rate Blending

Often, the purchaser of GICs has many contracts but wants to fund one rate to participators' accounts. Calculating the blended rate by averaging is one of the ways to do this based on dollar-weighted rates obtained from different GICs in the portfolio. After this, the mixed indicator is reported to plan participants and saved them to their accounts (F.J. Fabozzi 1998, s. 36).

If the customer does not especially ask for a divergent rate for each staff member, you can use the so-called blended rate. This mixed indicator is an average indicator for all people dealing up with the project (K.M. Kapp 2003, s. 257).

"The Irvine guidelines include an anticipated blended rate which is unexpected as a standard best practice since, as Zeughauser points out, such rates are out of favor now. Blended rates are hourly rates for entire teams. They more or less out the different hourly fees of all the team members. The client is billed at one rate for everybody. Today, there's resistance among many buyers because too much work might be getting assigned to relatively inexperienced associates who bill out more hours at higher rates than is economical for the client" (L. Smith 2001, s. 163, 164).

Blended Annual Rate

"With gift loans between individuals, interest computed during the borrower's taxable year is treated for both the lender and the borrower as transferred on the last day of the borrower's taxable year. Treasury regulations to Section 7872 provide rules for figuring foregone interest. Where a demand loan is in effect for the entire calendar year, a blended annual rate issued by the IRS to simplify reporting may be used to compute the imputed interest. The blended annual rate is announced by the IRS each July. For 2010, the blended rate is only 0.59%. The blended rate is not available if the loan was not outstanding for the entire year or if the loan balance fluctuated; computations provided by Treasury regulations must be used" (J.K. Lasser Institute 2011, s. 4.31 ).

Formula

"\(Blended \ Rate = r(w) + (r + CRP) * (1-w) = r + CRP * (1 - w)\)

r - risk free rate

CRP - Credit Risk Premium

w - a measure of the equity component embedded in the next period Convertible fair price, which can be estimated using the convertibles delta or the probability of conversion" (C. Agar 2005, s. 302).

References

Author: Radosław Cieślik