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Badgers1963
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Interest Payments Due Question

March 18th, 2014, 1:17 am

Hello all. I am looking to solve what I believed to be a rather simple problem, but have encountered others with a differing view. Here's the problem: Company A borrows from Company B.The notional is $100 million. The rate is 1.05% and the term is 1 year. The start date is 2/27/2009 and the end date, due to weekend interference, is 3/1/2010. Interest is due on 8/27/2009 and 3/1/2010. The 30/360 rate convention applies.What is the amount of interest due to Company B on each of the payment dates?I have calculated $525,000 for 8/27/2009 & $530,833.33 for 3/1/2010.Thanks!
 
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Samsaveel
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Interest Payments Due Question

March 18th, 2014, 5:04 am

524695.0766 every 180 day'sis the 1.05% per annum effective or compounded semi-annulay ?
 
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Badgers1963
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Interest Payments Due Question

March 18th, 2014, 12:02 pm

Samsaveel, It is 1.05% per annum - no compounding. Thanks.
 
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Badgers1963
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Interest Payments Due Question

March 18th, 2014, 3:48 pm

Samaveel, $524,695.0766?Why not: On 8/27/09 $525,000 ($100 million x 1.05% / 360 x 180) and on 3/1/10 $530,833.33 (($100 million x 1.05% / 360 x 180) + ($100 million x 1.05% / 360 x 2))?
 
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daveangel
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Interest Payments Due Question

March 18th, 2014, 4:13 pm

184 and 180 days no ?
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Badgers1963
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Interest Payments Due Question

March 18th, 2014, 4:33 pm

Daveangel, I don't think so. If the final maturity date could have been 2/27/10, then there would have been two equal interest payments of $525,000 ($100 million x 1.05% / 360 x 180). Simple bond formula. However, since the maturity date had to be extended 2 days to 3/1/10 due to 2/27/10 falling on a weekend, the interest payment on 3/1/10 should include 2 additional days ($100 million x 1.05% / 360 x 2). Agreed? Thanks!
Last edited by Badgers1963 on March 17th, 2014, 11:00 pm, edited 1 time in total.
 
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daveangel
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Interest Payments Due Question

March 18th, 2014, 4:47 pm

I would have thought that rolling back from maturity 1st March 2010, the last coupon period would start on 1st Sep 2009 and the second coupon period would start on 1st march 2009 leaving a short first stub from 27/2/2009 to 1st Marc 2009.so 4, 180, 180
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ppauper
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Interest Payments Due Question

March 18th, 2014, 6:21 pm

QuoteOriginally posted by: daveangelI would have thought that rolling back from maturity 1st March 2010, the last coupon period would start on 1st Sep 2009 and the second coupon period would start on 1st march 2009 leaving a short first stub from 27/2/2009 to 1st Marc 2009.so 4, 180, 180why would you think that when the first interest payment is due 8/27/2009
 
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ppauper
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Interest Payments Due Question

March 18th, 2014, 6:24 pm

where are you located ?the answer on accrued interest might possible vary according to jurisdictionnorway see page 12In Norway for example, for a 30/360 bond, the accrued interest when a theoretical coupon date falls on a non-banking day is accrued according to actual/365, so here you'd get an extra 2/365 interest (28 Feb and 1 March)
 
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daveangel
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Interest Payments Due Question

March 18th, 2014, 7:31 pm

there are different conventions to deal with this type of situation.Quote End of month ? previous good business dayDates are adjusted to the last day of the month but if that day is a weekend or holiday, then it is adjusted backward to the previous good business day.
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Badgers1963
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Interest Payments Due Question

March 22nd, 2014, 1:17 am

ppauper, I'm located in the USA. The convention is 30/360. daveangel, if the 1st payment date was 9/1/09, putting the stub at the front - then wouldn't the stub be 2 days (2/27 & 2/28)? I've always thought the stub should be actual number of days, even when the 30/360 convention is used and the stub period is less than 30 days.
 
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daveangel
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Interest Payments Due Question

March 22nd, 2014, 3:07 pm

QuoteOriginally posted by: Badgers1963ppauper, I'm located in the USA. The convention is 30/360. daveangel, if the 1st payment date was 9/1/09, putting the stub at the front - then wouldn't the stub be 2 days (2/27 & 2/28)? I've always thought the stub should be actual number of days, even when the 30/360 convention is used and the stub period is less than 30 days.you definitely know more about it than I do.. so if its 2, 180, 180 so be it.
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MattF
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Interest Payments Due Question

March 24th, 2014, 9:28 am

I'm with daveangel - it's 180 days and 184 days.The error you're making is saying it's been extended two extra days but in fact it's four extra days because of the 29th and 30th of February Edit: Of course if there's some special rule about using an actual convention for extra days as ppauper suggests then I'm wrong.
Last edited by MattF on March 23rd, 2014, 11:00 pm, edited 1 time in total.
 
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Pat
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Interest Payments Due Question

March 24th, 2014, 4:55 pm

Look at the note ... it should specifyIf it were a swap, then one would look for the theoretical end date (probably Feb 28), construct the semi annual schedule backwards from the theoretical end date ... once one has the theoretical end dates, you'd apply the business day convention (probably ModFol) to get the actual pay dates. One would then look to see if the interest payments are adjusted or unadjusted (in swaps they are generally adjusted) ... if they are adjusted then the interest accrues from actual date to actual date; if they are unadjusted then the interest accrues for theoretical date to theoretical date (and is paid on the actual date). In corporate bonds (don't know about loans), it is not uncommon for the interest payments to be unadjusted. Even if the interest payments are adjusted, there is a second flag "Maturity adjusted" ... if the interest payments are adjusted and the "Maturity adjusted" flag is "No" then interest for the last payment will only accrue up to the theoretical end date, and you may not get interest on the last couple of actual days ... which of course was incorporated in pricing the bond. Isn't this fun?For bonds, each bond is it's own little world, and the payment schedule is specified in the bond documents.Guessing from complete lack of knowledge, I believe corporate loans follow the swap rules more often than not, but the payment schedule, the business day rule, the adjusted/unadjusted flag, business day definition (and anything else that's needed to generate a legally enforceable schedule of payments) should be in the loan docs.
Last edited by Pat on March 23rd, 2014, 11:00 pm, edited 1 time in total.