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How do we calculate interest?

Supported Methods

There are 2 methods of interest calculation supported by Zero Hash:

  1. Interest can be accrued in USD, based on the initial value of the loan in USD; and
  2. Interest can be accrued in the form of the lent asset, based on the lent quantity of that asset.

Methodology

1. Accrue Interest in USD

To calculate accrued interest in USD, we use the Initial Loan Value (USD), Loan Rate, Accrual Method and Transaction Time fields that are filled in at loan submission. As a reminder:

  • Initial Loan Value (USD) is the initial value of the loan in USD, which is the Loan Quantity multiplied by the conversion price of Loan Asset / USD that the lender and borrower agree to. Example: $1,000,000.
  • Loan Rate is the annualized rate of interest to be applied to the value of the loan, to be paid by the borrower to the lender. Example: 5%.
  • Accrual Method is the method by which interest is calculated. Currently Actual/365 and Actual/360 are supported.
  • Transaction Time is the date and time that the loan was executed. Example: April 1, 2020 at 4pm CST.

Accrued Interest is therefore a simple calculation that uses the following structure:

Accrued Interest = Initial Loan Value (USD) x (Loan Rate / Accrual Method:Days) x (Now - Transaction Time)

Example

  • Initial Loan Value: $1,000,000
  • Loan Rate: 5%
  • Accrual Method: Actual/360
  • Transaction Time: April 1, 2020 at 4pm CST
  • Now: April 16, 2020 at 4pm CST

Accrued Interest = $1,000,000 x (5% / 360) x (April 16, 2020 at 4pm CST - April 1, 2020 at 4pm CST)

Accrued Interest = $2,083.33

1. Accrue Interest in the Lent Asset

To calculate accrued interest in USD, we use the Loan AssetLoan QuantityLoan Rate, Accrual Method and Transaction Time fields that are filled in at loan submission. As a reminder:

  • Loan Asset is the asset that is lent from lender to borrower. Example: BTC.
  • Loan Quantity is the amount of the Loan Asset lent from lender to borrower. Example: 100, which represents 100 BTC.
  • Loan Rate is the annualized rate of interest to be applied to the the loan, to be paid by the borrower to the lender. Example: 5%.
  • Accrual Method is the method by which interest is calculated. Currently Actual/365 and Actual/360 are supported.
  • Transaction Time is the date and time that the loan was executed. Example: April 1, 2020 at 4pm CST.

Accrued Interest is therefore a simple calculation that uses the following structure:

Accrued Interest = Loan Quantity x (Loan Rate / Accrual Method:Days) x (Now - Transaction Time)

Example

  • Loan Quantity: BTC
  • Loan Asset: 100
  • Loan Rate: 5%
  • Accrual Method: Actual/360
  • Transaction Time: April 1, 2020 at 4pm CST
  • Now: April 16, 2020 at 4pm CST

Accrued Interest = 100 x (5% / 360) x (April 16, 2020 at 4pm CST - April 1, 2020 at 4pm CST)

Accrued Interest = 0.20833333 BTC