Investments with their 'Income Style' set to 'Bond Interest' will earn interest since the last interest payment was received. This is interest earned, but not yet received. This is "accrued interest".
When calculating accrued interest, Fund Manager supports several calculation methodologies. Each investment can specify the appropriate methodology under "Investment Properties... / Income / Day Count Basis". The following day count basis methods are supported:
US (NASD) 30/360:
Each month is treated as 30 days, and 360 days in a year. This method is often used for US corporate bonds.
Actual/Actual:
The actual number of days is used for both the accrual period and year. This method is used for US Treasury bonds and notes.
Actual/360:
The actual number of days is used for the accrual period. 360 days is used for a year.
Actual/365:
The actual number of days is used for the accrual period. 365 days is used for a year.
European 30/360:
Each month is treated as 30 days, and 360 days in a year.
Technical Details:
Reference: Wikipedia's Day Count Convention
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Definitions: |
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Interest |
Amount of accrued earnings |
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CouponRate |
Interest rate for the bond, representing the amount of interest earned yearly as a percentage of the bond's face value. |
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Date1 (Y1.M1.D1) |
Starting date for the accrual. It is usually the coupon payment date preceding Date2. |
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Date2 (Y2.M2.D2) |
Date through which interest is being accrued. This is the "to" date, with Date1 being the "from" date. |
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Date3 (Y3.M3.D3) |
The coupon payment date following Date2 |
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Days(StartDate,EndDate) |
Function returning the number of days between StartDate and EndDate on a Julian basis (i.e., all days are counted). Example: Days(15 October 2009, 15 November 2009) returns 31. |
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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). |
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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. |
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Freq |
The coupon payment frequency. 1 = annual, 2 = semi-annual, 4 = quarterly, 6 = every other month, 12 = monthly. |
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Principal |
The bond's face value (shares owned times 100, see Bond Tips) |
For all day count basis methods the interest is calculated as:
30/360 Methods:
Both the US (NASD) 30/360 and European 30/360 calculation methods use the following formula for Factor:
The difference between US (NASD) 30/360 and European 30/360 is how D1 and D2 are adjusted prior to the calculation of Factor. Each method has its own set of rules:
US (NASD) 30/360 date adjustment rules: (follows all rules, in order)
Rule 1: If the investment is EOM and (Date1 is the last day of February) and (Date2 is the last day of February), then change D2 to 30.
Rule 2: If the investment is EOM and (Date1 is the last day of February), then change D1 to 30.
Rule 3: If D2 is 31 and D1 is 30 or 31, then change D2 to 30.
Rule 4: If D1 is 31, then change D1 to 30.European 30/360 date adjustment rules:
Rule 1: If D1 is 31, then change D1 to 30
Rule 2: If D2 is 31, then change D2 to 30.
Actual/Actual Method:
Uses the following formula for Factor:
Actual/360 Method:
Uses the following formula for Factor:
Actual/365 Method:
Uses the following formula for Factor:
When Fund Manager calculates the coupon dates (Date1 and Date3), it does so by going backwards from the maturity date. The amount of time between coupon dates is determined by the investment's Frequency setting. For example, a bond that matures on 1/1/2031 and has a semi-annual frequency will have coupon dates of 1/1/2031, 7/1/2030, 1/1/2030, 7/1/2029, etc... Accrued interest is calculated from the prior scheduled coupon date, not necessarily the date of your last recorded interest payment.
Bond Accretion and Amortization
Investment Properties - Income Dialog
