For example, if i had a $100 PIK note w 10% interest. Obviously at t0 we’d have interest of $0, at t1 we’d have interest of $10, but how about t2? Would it be $11 (10% * $100 + 10% of $10 that accrued to the principal), or would it just be $10 again? I would assume that as the principal balloons you pay interest on the entire amount, but just wanted to confirm.
Thanks
Yes, the PIK interest is added to the liability on the B/S I think. Over time, as you said you pay more interest, as it compounds. Obviously correct me if I am wrong.
Yeah, you generate incremental interest in the accrued balance is each period
Yeah, you generate incremental interest in the accrued balance is each period
Also - just an FYI. You often model PIK based on the starting balance, but cash interest on the average balance.
Do you know why?
Do you know why?
Is it just because it’d create circularity?
Aut quam quia officia officiis magni expedita. Et dicta est et qui officiis eos.
Nulla doloremque et optio praesentium deserunt corrupti. Vitae autem voluptas nostrum voluptatem dolore. Vel autem quo impedit ut rerum quia.
Illum rem eos qui unde facere ullam veritatis. Animi enim est maxime assumenda maxime eaque dolor. Sit adipisci delectus mollitia facilis. Sapiente est nisi esse. Consectetur fugit maiores earum rerum possimus atque architecto. Sunt tempora quis fuga id. Tempora eos inventore rem autem consequatur eligendi hic.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...