Help Understanding Quarterly Compounding for Waterfall
Hi there,
I am working on building out my own waterfall model and I am comparing it to other models... the actual excel part is the easy part for me, but the actual interest calculation part is giving me trouble...
For this example, let's assume the preferred return is 9%. I would assume that I would divide 9% by 4 and then compound it quarterly. However, in the sample JV docs I'm looking out, the periodic rate is calculated on the number of days elapsed over a 365 day period. So I realize I need to dive deeper, and I find the below formula in another model, but I do not understand how it works... It has been a while since my last business finance class.
=((beginning balance*(1+.09/4))^(4*Q1-Q2/365))-beginning balance)
Can somebody please help explain? I do not understand why we are raising with the daily interest rate.
Beginning Balance *.09*(days in quarter/365)
Thanks.. why did I make it so difficult?!![]()
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