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FINANCIAL MARKET COURSES

Interest Calculations

On the face of things, calculating interest sounds quite easy. In practice, however, there are a number of factors that affect interest calculation. The impact of these factors can make a significant difference to the growth of an asset or liability under different interest rate environments. The difference in interest payable on different calculation bases is not negligible – in financial markets, a basis point differential, or even a fraction of a basis point, can be crucial in getting a deal done.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Calculate interest and identify the factors affecting interest calculations

    Recognize how different day count bases can lead to differences in returns on investments

    Understand how compounding affects interest calculations

    Compare investment opportunities with different day count and compounding bases

    Calculate interest for periods beyond one year

    Explain how decompounding is the reverse of compounding

  • COURSE OUTLINE

    Topic 1: Overview of Corporate Banking

    Calculating Simple Interest

    Calculating Simple Interest – An Example

    Comparing Different Interest Rates

    Annualizing Interest

    Topic 2: Compound Interest

    From Simple to Compound Interest

    Compound Interest – Formula

    Compound Interest – Different Compounding Bases

    Comparing Compound & Simple Interest

    Payment Frequency

    Continuous Compounding

    Compounding Frequency

    Re-arranging Compounding Formulas

    Conversion between Different Compounding Bases

    Compounding Calculator

    Topic 3: Decompounding

    What is Decompounding?

    Topic 4: Combining Different Compounding & Day Count Bases

    Procedure for Comparing Investments

    Topic 5: Day Count Conventions

    Day Count Basis

    o Bond Basis

    o Money Market Basis

    Link between Bond Basis & Money Market Basis

    Conversion Calculator

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    75 Minutes

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