Interest Rate Arbitrage Calculator
Explore the carry trade between borrowed capital and an income-producing asset. Enter the cost of funds, asset yield, compounding assumptions, and time horizon to quantify spread, annual carry, and cumulative profit under different servicing strategies.
Inputs
Size of the debt-financed position (base currency).
Nominal annual rate charged on the borrowed amount.
How often the lender accrues interest.
Nominal annual return produced by the asset.
How often the asset's yield is reinvested.
Length of the trade, used to project cumulative outcome.
Interest-only: periodic carry is realized. Capitalized: interest rolls into the balance and is repaid at exit.
Results
Net Spread (EAR)
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How much more the asset earns each year (effective rate) than the loan costs you.
Debt Interest Paid
—
Every dollar of interest the lender collects over the full holding period.
Monthly Debt Service
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Typical monthly interest check you have to send to keep the loan current.
Asset Value (reinvested carry)
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What the asset balance grows to if you recycle each month’s leftover cash back into it.
Net After Debt (reinvested)
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Your equity after the horizon if you pay off the loan and kept reinvesting the carry.
Annual Carry
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Cash profit you keep in a single year while covering the lender’s interest bill.
Profit Without Asset Compounding
—
Total carry you keep after paying the loan’s interest bill each year (principal stays outstanding; no reinvestment).
Chart guide:
- Asset Value (blue) – base asset path without reinvesting profits.
- Debt Balance (red) – outstanding loan principal (flat if you service interest).
- Net Position (green) – cumulative cash carry when you skim profits instead of compounding them.
- Asset with Reinvested Carry (orange) – appears when the asset compounds and you reinvest each month’s carry.
- Net (with reinvested carry) (purple) – reinvested asset value after subtracting the payoff amount.
- Borrowed Principal (gray dashed) – original loan amount for reference.
How to read these numbers
- Net spread is the heartbeat of the trade: it’s the effective yearly edge the asset has over the loan. Positive spread means the carry trade works.
- Debt interest and monthly debt service show what the lender collects overall and the typical monthly check you have to write.
- Annual and cumulative carry (when interest is serviced) are the pure cash profits you skim off without reinvesting.
- Reinvested asset value & net after debt assume every leftover dollar is plowed back into the asset, illustrating how the position compounds while the loan stays in place.
- The chart mirrors all of this: blue vs. red lines are asset and debt, green is net spread, orange and purple plot what happens when you keep recycling the carry.