1.1.13.3 Exponential Interest calculation for accrual

Exponential calculations are achieved by deriving the effective annual rate and applying this with daily compounding.

The derived rate is applicable for schedule types Simple, Discounted and amortized schedule.

For exponential loans, the system derives the effective annual rate (R) from the Per Annum rate (r). The derived rate is used internally by system in interest calculations.

The derived rate is arrived at using the formula,

R = (POWER ((1+r), (1/YEAR)) -1)*YEAR

Where r = Per Annum rate

R= Derived rate

Year = Denominator basis of Main Interest component

Example:

Consider a loan for USD 100000 with 10% interest rate per annum for 5 days.

The exponential interest calculation/accrual is required as below:

Principal	Per Annum Interest - r	No. of days	Year Basis	Derived Rate - R(((1+10%)^(1/ 360))-1)*360
100000	10%	5	360	9.53%

Interest required to be calculated for a Exponential Bearing loan is as below:

• Principal*( ( (1+r) ^ (No. of Days/Year) ) - 1 )
• 100000*(((1+10%)^(5/360))-1) = 132.46

The interest calculated using derived rate R (9.53%) in bearing normal method with daily compounding is as below.

Day	Daily Interest	Cumulative Interest
1	26.48	26.48
2	26.49	52.96
3	26.49	79.46
4	26.50	105.96
5	26.51	132.46

Derived rate R is internally assigned for calculations using Exponential formula.