4.5.6 Interest Repayment Schedules as Different from Rate Revision Schedules

For a deal on which floating interest is applied at periodic intervals, you may have to define:

• An interest rate revision schedule for the interest component, as well as
• A repayment schedule.

The following example shows how this is achieved:

You have a deal where for the component interest; you have to define an interest rate revision schedule for revisions every week as well as a fortnightly interest repayment schedule. The Start Date of the deal is 1 October ‘97, and the End Date is 31 October ‘97. The deal is defined with a periodic rate and the rates in the floating rate table change in the following manner:

Table 4-6 Floating rates

Date	Description
1 October ‘97	12
12 October ‘97	11.5
25 October ‘97	11
15 November ‘97	12
30 November ‘97	12.5

Define a frequency based rate revision schedule

To define a schedule with periodic rate code usage, through the Contract Schedules screen, mark the component as a revision schedule and specify the component, say INTEREST, from the pick list. Give the frequency at which the interest rate has to be refreshed, say weekly. Give the Start Date, say 8 October. The first revision will happen on this day, and every week from then on. Save the inputs.

Define a date based rate revision schedule

If you were to define specific dates - 7 October, 15 October and 23 October - for the rate revision to happen, then, through the Contract Schedules screen, mark the component as a revision schedule and specify the component, say INTEREST, from the pick list.

Specify the date on which the rate revision is to be done, in the Start Date field, as 7 October. Similarly, define the other dates, but by picking up the same component INTEREST from the pick list each time.

Define a repayment schedule for the same component

Now to define a repayment schedule for the same component, INTEREST, click schedules Tab and choose the component interest from the pick list. Now draw up a repayment schedule for this component. Give a value in the Start Date field, say 15 October 1997. The first interest liquidation will be done on this date.

In the frequency field enter ‘monthly’ and in the unit field specify ‘2’. This means the interest repayments will be done every fortnight beginning 15 October.

That is, for a deal defined with frequency-based periodic rates, the rates prevailing on the refresh dates will be used for accruals and liquidation. In the deal we are discussing, with the refresh frequency defined as weekly and the Start Date as 15 October, the rate applied for the interest liquidation on 15 October will be as follows:

Table 4-7 Interest liquidation on 15 October

From	To	Rate
1 October	8 October	12
9 October	15 October	11.5

For a deal with Periodic rate code usage (date based), the rates prevailing on the specific refresh dates will be used for accruals and liquidation. Shown below are the rates applicable on the specified revision dates.

Table 4-8 Rates Applicable

From	Rate Applicable
7 October	12
15 October	11.5
23 October	11.5

In the deal we are discussing, the rates applied for the interest liquidation on 15 October will be as follows:

Table 4-9 Interest Rates

From	To	Rate
1 October	7 October	12
8 October	14 October	12
15 October		11.5