Learning outcome
You will be able to identify the main inputs to a lending accrual and explain why conventions matter.
Foundation
Key concepts
Reference rate and spread
A floating rate commonly combines a benchmark with a contractual margin, subject to any floor or adjustment.
Day-count fraction
The convention defines how elapsed days translate into a portion of a year, such as Actual/360 or Actual/365.
Accrual period
Start and end dates, inclusivity rules and business-day adjustments determine the days included.
Facility fees
Commitment, utilization, agency and other fees use their own bases, rates, periods and allocation rules.
In practice
Operating workflow
- 01
Identify the balance or fee base
Confirm whether the calculation applies to funded principal, unused commitment or another contractual amount.
- 02
Build the applicable rate
Apply the correct benchmark, spread, floor and other adjustments for the period.
- 03
Apply the convention
Count eligible days and divide by the contractual year basis.
- 04
Review rounding and timing
Apply currency precision, rate rounding and payment-date rules consistently.
Risk and quality
Control checklist
- Rate source and observation dates are evidenced
- Spread and floor match the current pricing tier
- Day count and date treatment follow the agreement
- Accrual agrees to an independent estimate within tolerance
Worked context
Example: simple Actual/360 estimate
For USD 1,000,000 at 6.25% over 30 days on Actual/360, the educational estimate is USD 5,208.33: principal × rate × 30/360.
Knowledge check
Test your understanding
Can two calculations use the same balance and annual rate but produce different interest?Show answerHide answer
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