Definitions
- Interest
- Amount of interest accrued on an investment.
- CouponFactor
- The Factor to be used when determining the amount of interest paid by the issuer on coupon payment dates. The periods may be regular or irregular.
- CouponRate
- The interest rate on the security or loan-type agreement, e.g., 5.25%. In the formulas this would be expressed as 0.0525.
- Date1 (Y1.M1.D1)
- Starting date for the accrual. It is usually the coupon payment date preceding Date2.
- Date2 (Y2.M2.D2)
- Date through which interest is being accrued. You could word this as the "to" date, with Date1 as the "from" date. For a bond trade, it is the settlement date of the trade.
- Date3 (Y3.M3.D3)
- The coupon payment date following Date2.
- Days(StartDate, EndDate)
- Function returning the number of days between StartDate and EndDate on a Julian basis (i.e., all days are counted). For instance, Days(15 October 2007, 15 November 2007) returns 31.
- EOM
- Indicates that the investment always pays interest on the last day of the month. If the investment is not EOM, it will always pay on the same day of the month (e.g., the 10th).
- Factor
- Figure representing the amount of the CouponRate to apply in calculating Interest. It is often expressed as "days in the accrual period / days in the year". If Date2 is a coupon payment date, Factor is zero.
- Freq
- The coupon payment frequency. 1 = annual, 2 = semi-annual, 4 = quarterly, 12 = monthly, etc.
- Principal
- Par value of the investment.
For all conventions, the Interest is calculated as:
Read more about this topic: Day Count Convention
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