help with accrued interest loan
hi, need some help on accrued interest.
I have a typical loan that compounds monthly, 30/360 day count convention and im looking to estimate the total principal and accrued balance on certain days.
I have found from my experience that doing a calculated methodology using the compound formula Principal(1+i/n)^(nlength), where n is compound period and length is the fraction of year (i.e. 12 elapsed months would raise the value to (12*1). I typically use YEARFRAC or DAYS360 to get this length value.
FORMULA = Principal(1+interest rate/comp.periods)^(comp.periodsYEARFRAC(beg.date,end.date,0))
I am noticing this number comes out to always be slightly different than a manual calculation of accrued interest, where, on a 30/360 basis, I would accrue interest monthly, add balance at end of month and new month would have interest on the new principal balance.
Is there any reason you could say to justify why a daily table of interest calc would never equal the formula calculated version from excel?
I just need to make sure I'm calculating this stuff correctly - using a formula to calculate this seems to easy. Is there any potential problems you run into when using this easy formula?
just to add to discussion, i noticed it correctly calculates on the end of month but the mid-month ending value is always different. Is there something I'm not factoring in when calculating 30/360 method of interest?
Also contrary, it shows ending balance for 2/28 as not two full months of interest, but instead of 3/1/2017. Is this a pecularity within Excel's software that is not how real life 30/360 interest would work? I know in february your interest payments per day accrue at higher rate because there is 28 days, but i would assume on 2/28/2017 at end of business day, you should be owed a full two months worth of interest (plus compounding effect on the january month). Any reasoning as to why the balance shows the 102.01 on end of day 3/1/2017 instead would be greatly appreciated.
Basically i need to get the principal and accrued balance owed at certain date, and even though they are very slightly off, i need it to be correct. Any help on which method you think would be appropriate, let me know.
interest calc
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