1. Working with Strategic Modeling in Smart View
  2. Using Debt Scheduler and Value Calculators
  3. Using Debt Scheduler
  4. Debt Scheduler Interest and Accrued Interest Calculations

Debt Scheduler Interest and Accrued Interest Calculations

Day Count Conventions and Direct Calculation of Interest Payments and Accrued Interest

  • Interest is calculated using the selected Day Count Convention on days when:
    • An interest payment is due.
    • The debt balance changes.
    • It is the end of the current time period.
  • Interest is calculated using the DCF (day count fraction), which is based on the number of elapsed days since the last interest payment and the number of days in a year, according to the selected Day Count Convention for the instrument.
  • Interest is calculated on the balance at the beginning of the day.

  • Interest payments and accrued interest (including PIK interest) are calculated based on the selected day count convention, the number of elapsed days, the balance, and the rate to be applied to the balance. The day count convention and the number of elapsed days can be used to calculate the DCF which is used in the calculation. In the simple case, interest and accrued interest are calculated using the appropriate DCF as follows:

    DCF * Balance * Rate

    For interest payments, the DCF is calculated based on the number of days between the last interest payment and the current interest payment.

    For accrued interest, the DCF is calculated based on the number of days between the current date and the most recent interest payment. If that is the same date, then the accrued interest is zero.

Calculating the Dates of Interest Payments

Before calculating a Debt Schedule, the scheduled dates of all interest payments that should be made during the term of the loan according to the selected day count convention are calculated. Temporarily storing these dates in ascending order makes it easy to see when a payment is due as well as when the previous payment was.

Calculating the Day Count Fraction

The day count fraction (DCF) is the fraction of a year that is represented by the difference of the two dates involved. Dates that are separated by less than a year have values less than one; dates that are separated by more than a year have values greater than one.

Interest Expense Calculated Indirectly

Interest expense is calculated indirectly, as it is a flow that is related to the accrued interest balance account and the interest payment flow. It is the change in the accrued interest account plus any interest payments during the time period.

Calculating Interest Payments and Accrued Interest When the Debt Balance and Interest Rate Are Changing

The formula for calculating these values in a changing environment is:

DCF * (Weighted Average of (Balance * Rate))

Debt Scheduler calculates using the real daily calendar. Calculations take into account the selected day count convention, which might not map to the calendar.

Debt Schedules That Begin In Historical/Actual Periods

Because Debt Scheduler does not calculate the debt schedule in historical/actual periods, you must provide correct initial values (that is, in the last leaf period that the debt scheduler does not calculate) for the debt balance and accrued interest, so that the values in the forecast period are accurately calculated.