Compound interest and Countercyclical buffer: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
m (Classify page.)
 
imported>Doug Williamson
(Expand. Source: BIS webpage https://www.bis.org/bcbs/ccyb/)
 
Line 1: Line 1:
Compound interest is calculated as ‘interest on interest’ as well as interest on the original principal amount.
(CCyB).


Compound interest per year is the usual quotation basis for periods of more than a year.
A [[capital adequacy]] requirement for a capital cushion to allow and compensate for procyclical effects.  
 
To calculate compound interest for different periods we compound up or de-compound the interest depending on the relative lengths of the periods being considered.
 
 
<span style="color:#4B0082">'''Example 1'''</span>
 
Interest quoted at 6% per annum,
 
compounded annually,
 
for two years maturity,
 
with all of the interest paid at the final maturity,
 
means that the interest paid after two years will be (compounding up for two periods):
 
= (1.06 x 1.06) - 1
 
= 12.36% periodic interest for the two year period.
 
 
Decompounding is used to calculate periodic interest for a shorter period.
 
 
<span style="color:#4B0082">'''Example 2'''</span>
 
If periodic interest is 12.36% for a two-year period, this means the total accumulated interest payable/receivable at the end of the two years is 12.36%.
 
Decompounding the 12.36% (per two years) to calculate the interest for just one year. One year's interest:
 
= (1 + 0.1236)<sup>(1/2)</sup> - 1
 
= 6.00% per one-year period.




== See also ==
== See also ==
* [[CAGR]]
* [[Capital Conservation Buffer]]
* [[Compounding effect]]
* [[Procyclical]]
* [[Day count conventions]]
* [[Countercyclical]]
* [[Effective annual rate]]
* [[Total Loss Absorbing Capacity]]
* [[Nominal annual rate]]
* [[Periodic rate of interest]]
* [[Periodic yield]]
* [[Simple interest]]
 
[[Category:Cash_management]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Revision as of 17:06, 31 July 2016

(CCyB).

A capital adequacy requirement for a capital cushion to allow and compensate for procyclical effects.


See also