Assume interest rate (annualized) is 6% and PIK interest is 5% (annualized). Should I model it on a quarterly basis? How to do that? Thanks!
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(1 + 6%/4)^4 - 1 = 6.14%. Use this for the annual cash rate.
(1 + 5%/4)^4 - 1 = 5.09%. Use this for the annual PIK rate.
Isn't it specifically the opposit?
(1 + 6%)^(1/4) - 1= 1.467%
=> (1 + 1.467%)^4 - 1 = 6%
No
Same way you’d do anything else - divide the rate by 4, and compound quarterly.
Multiply the rate by the days in the period (quarterly will be 90-92 depending) divided by the year rate agreed to in the credit agreement (either 360 or 365).
I'm honestly not getting any of the math above. My interpretation:
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