Lesson 17 of 25 · 6 min

Accrued interest that is not yet in the printed balance

The printed balance is a date; accrued interest since that date is already inside the maintenance test.

The February statement closes at $1,847,220.00. That is a figure as at 28 February. On the morning of 12 March the next statement does not yet exist. Period 1 has already accrued $3,934.07. The amount outstanding for a maintenance test is $1,847,220.00 + $3,934.07 = $1,851,154.07. The printed page still says $1,847,220.00.

The sample's maintenance threshold is 70 percent of market value. Trigger value is balance ÷ 0.70. On the printed February close the trigger is $1,847,220.00 ÷ 0.70 = $2,638,885.71. On the accrued figure it is $1,851,154.07 ÷ 0.70 = $2,644,505.81. The $3,934.07 of unseen accrual has already consumed $5,620.10 of headroom, because $3,934.07 ÷ 0.70 = $5,620.10.

Fifteen days into the illustrated April the same gap has a different size. April opens at $1,858,563.47. Fifteen days at 7.22 percent, Act/360, accrue $1,858,563.47 × 0.0722 × 15 ÷ 360 = $5,591.1784…, which prints as $5,591.18. The true outstanding is $1,864,154.65. The March statement, if it is still the last page in hand, still closes at $1,858,563.47. The test does not wait for 2 May.

Capitalisation is when the running total joins the printed principal. Accrual is the running total itself. A reconstruction of a closed statement recovers the capitalised figure. A reconstruction of today's test has to add the days since that close, at the rate now in force, on the balance now outstanding.

Key terms

Printed balance: The principal as at a statement date. It is silent on the days since that date.
Accrued but not capitalised: Interest earned since the last close and not yet folded into principal. It already sits in the maintenance numerator.
True outstanding: Printed principal plus the running total. $1,851,154.07 on the morning of 12 March.

Worked example

Two mornings the statement has not reached

Sample threshold 70 percent of market value. Accrual Act/360.

Printed close, 28 February: $1,847,220.00
Accrued by 12 March: $3,934.07
True outstanding that morning: $1,851,154.07
Trigger on the printed close: $2,638,885.71
Trigger on the true outstanding: $2,644,505.81
Headroom already consumed: $5,620.10

The February page cannot mention $3,934.07. The test on 12 March already includes it, and it has already moved the trigger by $5,620.10.

Check yourself

Fifteen days into April, opening $1,858,563.47 at 7.22 percent, Act/360, threshold 70 percent. What has accrued, what is the true outstanding, and how much headroom has that accrual consumed?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.