Module VI· Interest Calculation MechanicsAdvanced
Question

How do you model step-up coupons in a bond schedule?

Answer

Create a coupon schedule by period. The coupon changes according to bond terms, such as rating step-ups, time-based increases, or leverage triggers. Interest equals bond balance times applicable coupon times period fraction. Add checks for trigger dates and ratings / leverage assumptions. Step-up coupons affect future cash interest and refinancing incentives.