Dear all, good morning/afternoon
I have been trying for quite a long time now to understand how the indivividual interest rate entered on IT0045 is converted to a specific effective interest rate. I have seen a lot of documentation and in it is clearly stated that SAP does not use a specific formula but instead some type of iterative methodology in which you "try" differen interest rates until you find the one you need. Truth be told, it is not clear (for me at least) how that methodology behaves. I have also spent quite a while debugging the standar code and have been unable to get any further on my undertsanding.
I am probably lacking the financial knowledge to understand how it works but, if I use the standard international formulas to convert an annual nominal interest rate into a Monthly effective interest rate that are available all over the internet, I never get to what SAP has calculated.
My case:
My client is in Argentina and uses the SAP international customizing for Loans (there is nothing specific for this country).The Loans are all annuity based and use the 30/360 interest calculation method. The period parameter is Monthly (01) and the annuity cycle is 01/01 meaning that they pay principal+interest every single month (period - monthly payroll areas). The value date for the different payroll areas on view V_T506S is setup to be end of the period.
Example of a loan:
Begin date of IT0045 record: 01/03/2012
Loaned amount: $10000
Loan payment: 01/03/2012
Repayment starts: 01/03/2012
Agreed installments: 24 => end date of loan 28/02/2014 (end date of IT0045 record)
Nominal annual interest rate (a.k.a individual interest rate): %12,00
What is the "calculation " that SAP is conducting in order to populate the effective interest rate field with an annual effective interest rate of %12,7026????. By standard international formula, that percentage should be %12,6825. The later would arise from:
- Taking% 12,00 and divide by 12 (months) => 1,00% nominal montly rate
- Applying the formula ((1+i/100)^12)-1 => ((1+1,00/100)^12)-1 => %12,6825.
The problem is that the client is calculating based on this formula and SAP is not, which is causing difference in the annutity installment and I need to understand how this works in order to explain to the client why we are having differences.
A precise answer on this will be greatly appreciated.
Thank you very much for your time and help on the matter.
Best regards,
Eduardo