Interest determination date and Rate of return: Difference between pages

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imported>Doug Williamson
(Expand the page for different annual bases of quoting rates.)
 
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An interest determination date is a date by reference to which an amount of interest is calculated.
The investor's return on an investment, expressed as a proportion of the amount invested.


There is normally a time lag between the interest determination date and the interest payment date.
Most commonly expressed as a percentage.




:<span style="color:#4B0082">'''''Five-day lag'''''</span>
<span style="color:#4B0082">'''Example'''</span>


:"In SONIA referencing bonds, we have seen the Interest Determination Date set five days in advance of the interest payment date.
GBP 1 million is invested.  


:This essentially creates a five-day lag between the interest period and the interest rate reference period.
GBP 1.03 million is repayable at the end of the period.  


:For example, for a bond that is due to rollover on the 15th of the month, the final interest rate applicable in that period would be finalised on the 10th of that month, enabling market participants sufficient time for calculation of cash flow and settlement...


:It is possible that over time the five-day period could shorten as the market becomes more familiar with this change in convention."
The rate of return per period (r) is:


:''The Treasurer magazine, Cash Management Edition April 2019 p28, Lloyds Bank.''
r = (End amount / Start amount) - 1
 
 
''Which can also be expressed as:''
 
r = (End / Start) - 1
 
''or''
 
r = <math>\frac{End}{Start}</math> - 1
 
 
= <math>\frac{1.03}{1}</math> - 1
 
= 0.0300
 
= '''3.00%''' per period
 
 
=== Basis of quoting rates of return ===
 
The rate of return in the example above has been calculated and stated on a periodic basis.
 
Rates of return are often also quoted on an annual basis, following the conventional quoting convention for the market in which the proposed deal is being quoted.




== See also ==
== See also ==
* [[Bond]]
* [[Conventional year]]
* [[Determination]]
* [[Effective annual rate]]
* [[Settlement]]
* [[Nominal annual rate]]
* [[SONIA]]
* [[Periodic]]
* [[Periodic rate]]
* [[Real return]]
* [[Return]]
* [[Yield]]


[[Category:Financial_products_and_markets]]
[[Category:Corporate_finance]]

Revision as of 17:01, 19 November 2015

The investor's return on an investment, expressed as a proportion of the amount invested.

Most commonly expressed as a percentage.


Example

GBP 1 million is invested.

GBP 1.03 million is repayable at the end of the period.


The rate of return per period (r) is:

r = (End amount / Start amount) - 1


Which can also be expressed as:

r = (End / Start) - 1

or

r = <math>\frac{End}{Start}</math> - 1


= <math>\frac{1.03}{1}</math> - 1

= 0.0300

= 3.00% per period


Basis of quoting rates of return

The rate of return in the example above has been calculated and stated on a periodic basis.

Rates of return are often also quoted on an annual basis, following the conventional quoting convention for the market in which the proposed deal is being quoted.


See also