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📈 Interest

An interest event represents a periodic interest payment from a debt instrument, fixed-income security, or lending arrangement.

📖 Definition

Interest is the cost of borrowing money, paid by the issuer (borrower) to the holder (lender). For investors, interest payments represent income earned from holding bonds, notes, term deposits, or peer-to-peer loans.

Unlike dividends (which depend on company profits), interest payments are contractually obligated — the issuer must pay the agreed rate regardless of financial performance.

Common interest schedules:

Frequency Typical Instruments
Monthly Savings accounts, P2P loans
Quarterly Corporate bonds, some government bonds
Semi-annually US Treasury bonds, many European government bonds
Annually Some corporate bonds, term deposits
At maturity Zero-coupon bonds, certificates of deposit

📉 Impact on Market Price

For coupon-bearing bonds, interest payments cause a periodic reset of the accrued interest component:

  1. Between coupon dates, the bond's "dirty price" (clean price + accrued interest) increases gradually
  2. On the coupon payment date, the accrued interest resets to zero
  3. The clean price may dip slightly around the ex-coupon date

Example

A bond with face value €1,000 pays a 4% annual coupon semi-annually (€20 every 6 months).

  • Day before coupon: Clean price €980, Accrued interest €20 → Dirty price €1,000
  • Coupon date: Accrued interest resets to €0, investor receives €20 cash
  • Day after coupon: Clean price €980, Accrued interest ≈ €0.11 → Dirty price €980.11

For Scheduled Investment assets in LibreFolio, interest events directly modify the calculated price:

\[ \text{price}(d) = \text{initial{\_}value} + \text{accrued{\_}interest}(d) - \sum \text{INTEREST events} \]

📊 Yield Metrics

Current Yield

\[ \text{Current Yield} = \frac{\text{Annual Coupon}}{\text{Current Market Price}} \times 100\% \]

Yield to Maturity (YTM)

The total return anticipated if the bond is held until maturity, accounting for coupon payments, face value repayment, and the current market price.

🧮 How LibreFolio Handles Interest

In LibreFolio, an INTEREST event is recorded with:

  • Date: The interest payment date
  • Amount: The cash amount received
  • Currency: The currency of payment

For Scheduled Investment provider assets, interest events are generated automatically from the configured interest schedule and directly affect the price calculation. For market-priced bonds, they serve as informational markers.