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TRM Securities Effective Interest Calculation

Nov 24, 2016 at 08:43 PM

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Hello,

I’m implementing TRM Securities. I’m having an issue regarding the Effetive Rates.

When i buy a Bond with Payment Value diferente from the Nominal Value, due to Price/Quotation diferente from 100% the system calculates a new Interest Rate (Effetive Interest Rate). So far so good.

But the project is telling me that we need to post the nominal interest (with the rate defined in FWZZ) but also calculate and post the amount of interest we would have if the interest rate would be the one set in Effetive Interest Rates.

Because the difference between these two would tell me if i’m actually gainning or losing in this bond.

Does anyone ever had this request? How to post these values calculated from the Effetive Interest Rate?

I’m attaching the exemple:

Currency EUR

Nominal Value 300.000

Purchase Amount 336.306

Interest when Buying 3.996

Date 18-03-2016

Maturity 09-11-2020

Cupon Rate 3,75%

Effetive Interest Rate Calculated by SAP = 1,0636755% (Correctly Calculated)

Nominal Interest Value = Nominal Value * Cupon Rate = 11.250€

Effective Interest Value (1st Year) = Purchase Amount * Effetive Interest Rate = 3.577,20€

Profit/Cost with Interest = Effetive Interest Value - Nominal Interest Value = - 7.673,80€

Correct Bond Value (1st Year) = Purchase Amount – Profit/Cost with Interest = 328.633,20€

In the following years the Effetive Interest Value changes as shown:

Effetive Interest Value (Year n) = Correct Bond Value (n – 1) * Effetive Interest Rate

So in we end up by having something like i'm attaching in file.sap-example.jpg

Again, has anyone done something like this?

Thank you very much,

Nuno Anjos

sap-example.jpg (52.3 kB)
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5 Answers

Gustavo Vazquez Nov 25, 2016 at 11:17 AM
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Hi Nuno,

Effective Interest rate is calculated based on the chasflow, which eventually is based on the bond interest rate.

You may want to take a look at NPV (Net Present Value).

https://en.wikipedia.org/wiki/Net_present_value

https://en.wikipedia.org/wiki/Internal_rate_of_return

https://en.wikipedia.org/wiki/Effective_interest_rate

https://blogs.sap.com/2016/06/01/sap-effective-interest-rate-vs-ms-excel-irr-xirr/

https://blogs.sap.com/2016/06/08/npv-analysis/

Hope this helps.

Kind Regards

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Nuno Anjos Nov 25, 2016 at 11:52 AM
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Hello Gustavo Vazquez,

Thank you for answering but my doubt is not about the concept of Interest Rate or Intereste Rate.

My question is related of posting both Nominal Interest Values and Effetive Interest Values (so i have a result gain or loss of the Interest).

Do you think is possible?

I notice your links relate to Money Market but i'm only configuring Securities.

Thank you again,

Nuno Anjos

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Gustavo Vazquez Nov 29, 2016 at 10:20 AM
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Hi Nunjo,

I think it's not possible. You could create another condition to post Effective Interest, but this will affect cashflow of the bond.

In the examples I talked about Money Market, but the same is valid for Securities.

Kind Regards

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Nuno Anjos Nov 29, 2016 at 11:50 AM
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Hello Gustavo,

Yes, SAP confirmed it's not possible. They also sugested to use the 54A product but i need the information about the SECURITY_ID and i do not have it in that type of transaction.

We will inform the client and maybe develop something. Thank you very much for your help.

Nuno Anjos

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Nuno Anjos Jan 19, 2017 at 01:45 PM
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Dear all,

First of all, thankyou for replying. Although SAP confirmed me it's not possible. Apparently TPM1 with amortization step does exactly what it's desired.

Thank you all.

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