Overview
and Fair Value Model Inputs
Numerous accounting standards allow or require the use of fair value accounting.
Effective for the first period after November 15, 2007, ASC 820 (formerly FAS157) defines
three approaches to calculating fair value. The three approaches are market,
income and cost. Our Model computes fair value of financial instruments
using the income approach. The income approach is based on a discounted
cash flow
model.
Our
model
determines contractual cash flows and values them based on a constant
market yield
.
Fair Value Model Inputs
Our Model allows you to compute a fair value based
on a current market yield and the contractual cash flows.
The following inputs are collected (see Figure 1):
| Instrument Name, Instrument Number and Notes |
These inputs allow you to describe the instrument that is being
modeled. |
| As of Date |
The measurement date used in the valuation.
This date is used as the starting point for the number of months
in the
term. |
| Unpaid Principal Balance |
The remaining principal as of the measurement date. |
| Contractual Interest Rate/Starting Interest Rate |
Default interest rate to use for the instrument. Once created the
model allows for adjustments to the rate by month. |
| Originator, Holder Status, Interest Index, Interest Details
and Instrument Type |
These inputs provide additional information relating to this instrument.
For example, the Originator allows you to enter information relating
to the organization that originated this instrument and the Instrument
Type input allows you to describe the broad category of this instrument. |
| Interest Model |
The Interest Model input can be either 360/30, Actual Days, or
360/actual days. The 360/30 model assumes that there are 30 days
in each month and 360
days per year for monthly interest computations. The Actual Days
model computes interest using the actual calendar number of days
in each month (e.g. 28 days in February on non-leap years and 29
days
in
leap years). The 360/ actual is ahybrid between the two models. |
| Remaining Term (Months) |
The number of remaining months until this Instrument is paid off
and the term to use for amortization. This input may be any number
between
2 and 480 months allowing maximum flexibility. At the end of the
term, the instrument is assumed to be paid in full. |
| Unamortized Costs (Fees) |
The amount of unamortized fees, costs, discount or premium. This
amount is used to determine the basis in an instrument. |
| Fair Value Yield |
The yield a market participant would require to buy or sell this
instrument. This is the key driver of the valuation and should take
into consideration interest rates, expected losses and risk inherent
in the modeling process. |
| Payment Terms Radio Buttons |
The Model allows you to select a standard payment term (fully
amortizing principal and interest), interest-only payments or
a balloon payment at term. |
Figure 1. Input screen for all scenarios to provide
basis for Fair Value computation.
Note that major inputs have buttons
marked with  .
These buttons open help windows describing the input and providing
information on the use of that information.
Go
on to Fair Value Model Output >
|
