Overview
While InterestThing lets you solve cashflows with inflows, outflows and unknowns, it can also be used to just calculate interest.
Using the year fraction as date intervals, you can combine four types of interest with sixteen different day count conventions, for a total of 64 possible combinations. Taking into account the different compounding frequencies adds even more combinations.
Using periods ad days as date intervals, you can combine four types of interest with ten period lengths, for a total of 40 combinations.
Setting one of four different year lengths used to calculate daily interest and adding reference dates lets you further fine tune capitalization or compounding.
With more than hundred possible combinations (not counting sub options) you're spoilt for choice.
This may sound intimidating, therefor understanding what each option does is key.
In most cases you'll be using just a few combinations, but when there's the need to get it exactly right, remember that the extra combinations are there...
To learn more about the different methods to calculate interest and the possible issues of a particular method, click here.
To learn more about InterestThing's compute options, click here.
What settings should I use?
When calculating interest based on the number of days and the actual number of days in the year, the Act/Act ISDA day count convention is probably the one you need.
When calculating interest based on a standard year in which all months are assumed to be 1/12th of a year, the 36/360 ISDA day count convention is a good choice.
Other day count conventions have slightly different ways of calculating a year fraction, so if you need to use one of these variations, choose the corresponding convention.
For interest calculations that involve regular compounding, using the periods and days method with the approriate compounding frequency is the way to go.
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