Schedules and Interest Rates

The application uses the following logic to determine the interest rate used to generate the financial schedules and the initial liability:

If the Use IBR checkbox is selected the Incremental Borrowing Rate is used.
Otherwise, the entered Contract Rate is used.

The financial schedules display the effective interest rates, which are calculated based on the nominal rates (entered in Contract Rate or selected from the IBR table), and the compounding frequency. For example, using the 360 Day Convention:

If the Nominal Annual Rate is 6.0000% and the Compounding Frequency is Monthly, then the application calculates the effective interest rates as follows:
- Effective Annual Rate: 1 + (0.06 annual nominal rate / 12 months)) ^ 12 compounding periods - 1= 6.168%
- Effective Monthly Rate: (1 + 0.06168 annual effective rate) ^ (1 month / 12 months) – 1 = 0.500%
If the Nominal Annual Rate is 6.0000% and the Compounding Frequency is Annual, then the application calculates the effective interest rates as follows:
- Effective Annual Rate: (1 + (0.06 annual nominal rate / 1 year)) ^ 1 year - 1 = 6.000%
- Effective Monthly Rate: (1 + 0.06 annual effective rate) ^ (1 month / 12 months) - 1 = 0.487%

The initial liability used in the schedule is determined as follows:

The initial liability used for the schedule is the PV.
The PV calculation uses the expected GRV payment (and the liability balance will be 0 at the end of the schedule).