State and Local Government Series (SLGS) Interest

Calculations

Presented by:Alanna Kelly & Carrie Smith

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SLGS Interest Calculations• Certificates of Indebtedness– Interest Calculation– Early Redemption Calculation

• Notes & Bonds – Semi-Annual Interest Calculation– Short Interest Period Calculation– Long Interest Period Calculation– Early Redemption Calculation

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Certificates of IndebtednessThe SLGS Certificates of Indebtedness that are interest bearing are certificates with a maturity period of not less than thirty days and not more than one year.

There are non-interest bearing Certificates of Indebtedness that have maturity period of not less than fifteen days and not more than one year.

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Certificates of Indebtedness• Certificate of Indebtedness Interest Calculation

– (Annual Interest/Number of Days in the Annual Interest Period) X Number of Days Outstanding = Interest Payment Amount

• Number of Days in the Annual Interest Period – You calculate this by using the number of days between the issue date

and one year after the issue date. (For Example: 03/1/11 – 02/28/12, date ranges for 2012 Leap Year.)

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Certificates of Indebtedness• Example:

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Principal Interest Rate Issue Date Maturity Date$45,618,182.00 0.15% 04/17/2012 12/01/2012

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Certificates of Indebtedness(Annual Interest/Number of Days in the Annual Interest Period) X Number of Days Outstanding = Interest Payment Amount

• Multiply the Principal by the Interest Rate to get the Annual Interest• $45,618,182 X .15% = $68,427.27

• Calculate the Number of Days in the Annual Interest Period• 4/17/2012 to 4/17/2013 = 365 days

• Calculate the Number of Days Outstanding • 04/17/2012 to 12/01/2012 = 228 days

• Divide the Annual Interest by the Number of Days in the Annual Interest Period and multiply the product by the Number of Days Outstanding.• ($68,427.27/365) X 228 = $42,743.61

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Certificates of Indebtedness

An interest bearing SLGS Certificate of Indebtedness may be redeemed no earlier than twenty five days after issue date.

The early redemption amount will be computed based on the current market value.

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Certificates of IndebtednessBorrowing Rate Calculation

• The Current Borrowing Rate is calculated in the following way:

• Find the term from Early Redemption Date to actual Maturity Date and the corresponding rate on the SLGS Rate Table for the Redemption Request Date.

• Add one basis point to the corresponding SLGS Rate for the Current Borrowing Rate.

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Certificates of IndebtednessEarly Redemption Calculation

• Redemption Value (RV) is calculated using the following formula:• RV = {[(Number of Days from Issue Date to

Maturity/Number of Days in the Year Following the Issue date) X (Interest Rate X Early Redemption Amount) + Early Redemption Amount] / [1 + (Number of Days from Early Redemption Date to Maturity Date / Number of Days in the Year Following the Issue Date) X Current Borrowing Rate]}

– Accrued Interest

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Certificates of IndebtednessPremium or Discount Calculation for Early Redemption

• If the Redemption Value < Early Redemption Amount then a discount is calculated as follows:• Discount = Early Redemption Amount – Redemption Value

• If the Redemption Value > Early Redemption Amount then a premium is calculated as follows:• Premium = Redemption Value – Early Redemption Amount

• If the Redemption Value is equal to the Early Redemption Amount then there is no premium or discount.

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Notes & Bonds• Notes

• The SLGS Notes have a maturity period of not less than one year and one day, and not more than ten years.

• Bonds• The SLGS Bonds have a maturity period of not less than ten years and

one day, and not more than forty years.• Interest Payment Dates on Notes and Bonds

• Notes and Bonds pay interest semi-annually. • The issuer specifies the first interest payment date.• The first interest payment date must be at least thirty days and less than

or equal to one year from the date of issue. • The first interest payment date must also coincide with the maturity

date.

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Notes & Bonds• Semi-Annual Interest Calculation

• (Principal X Rate) / 2 = Semi-Annual Interest

• Example:• Semi-Annual Interest Payments will be calculated as follows:

• ($50,000 X 2.5%)/2 = $625

• Short Interest Period• When you choose a first interest payment date less than 6 months from your

issue date.

• Long Interest Period• When you choose a first interest payment date more than 6 months from your

issue date.

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Notes & Bonds• Short Interest Period Calculation

• (Semi-Annual Interest/Number of Days in the Semi-Annual Interest Period) X Number of Days Outstanding = First Interest Payment

• Example:• Issue Date of 02/05/2013 • First Interest Payment Date of 04/01/2013

• Number of Days in the semi-annual interest period 10/01/2012 to 04/01/2013 = 182 days

• Number of Days Outstanding from 02/05/2013 to 04/01/2013 = 55 days

• ($12,184.03/182) X 55 = $3,681.99

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Notes & Bonds• Long Interest Period Calculation

• Semi-Annual Interest + (Semi-Annual Interest/Number of Days in the Partial Interest Period) X Number of Days Outstanding in the Partial Period = First Interest Payment

• Example• Issue Date of 02/27/2013• First Interest Payment Date of 09/01/2013

• Number of days in the partial interest period from 09/01/2012 to 03/01/2013 = 181

• Number of days outstanding in the partial period from 02/27/2013 to 03/01/2013 = 2

• $2,234.00 + ($2,234.00/181) X 2 = $2,258.69

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Notes & BondsAn interest bearing SLGS Note or Bond may be redeemed no earlier than thirty days after issue date.

The early redemption amount will be computed based on the current market value.

There are different parameters that decide what formula is used for this Calculation

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Notes & BondsExample:

If the Interest Rate is greater than 0% and the Redemption Date is greater than or equal to the First Interest Payment Date then use the following formulas for Accrued Interest (AI) and Redemption Value (RV).

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Notes & BondsCalculation for Accrued Interest on Early Redemption:

AI = [(Number of Days in the Semi-Annual Period Containing the Redemption Date – Number of Days from Early Redemption Date to Next Interest Payment Date)/ Number of Days in the Semi-Annual Period Containing the Redemption Date] X (Annual Interest/2)

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Notes & BondsCalculation for Component Vⁿ for Early Redemption:

Vⁿ = 1 / (1 + (Current Borrowing Rate/2))ⁿ

ⁿ = the number of remaining full semi-annual interest periods from early redemption date to maturity date except if early redemption date is on an interest payment date, ⁿ will be one less than the number of full semi-annual periods remaining to maturity date

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Notes & Bonds

Calculation for Component an for Early Redemption:

an = (1- Vⁿ)/(Current Borrowing Rate/2)

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Notes & BondsCalculation for Redemption Value on Early Redemption:

RV = {[((Annual Interest/2) + (Annual Interest/2) X an) + (Early Redemption Amount X Vⁿ)] / [ 1 + (Number of Days from Early Redemption Date to Next Interest Payment Date / Number of Days in Semi-Annual Period Containing the Redemption Date) X (Current Borrowing Rate / 2)]} - AI

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Notes & BondsPremium or Discount Calculation for Early Redemption

• If the Redemption Value < Early Redemption Amount then a discount is calculated as follows:• Discount = Early Redemption Amount – Redemption Value

• If the Redemption Value > Early Redemption Amount then a premium is calculated as follows:• Premium = Redemption Value – Early Redemption Amount

• If the Redemption Value is equal to the Early Redemption Amount then there is no premium or discount.

SLGS Interest Calculations• Certificates of Indebtedness– Interest Calculation– Early Redemption Calculation

• Notes & Bonds – Semi-Annual Interest Calculation– Short Interest Period Calculation– Long Interest Period Calculation– Early Redemption Calculation

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Questions?

SLGS Interest Calculations