Interest at Maturity

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IAM (Interest At Maturity) - usually loan or deposit given for special period of time with only two principal exchanges made ot the settlement and maturity dates. So there are only two associated cashflows when notional is paid/received and one cashflow that refers to interest payment.

Picture 1 represents example of simple IAM deposit deal with period of 3 months and interest rate at 4% annually. On the value date (01/Jan/2007) some BANK receives 180 000$ as a deposit (Cashflow A), on the maturity date (01/Apr/2007) BANK returns principal value to Player (Cashflow B1) and pays interest rate (Cashflow B2). Because of interest and principal payment are made on one date, it is usually considered B1 and B2 to be one cashflow. But its needed to understand that cashflow B consist of two sub-cashflows dividev on some logical level.

There are two subtypes of IAM deal:

• Simple IAM (described above)
• Discounted IAM

The difference between simple IAM and discounted is only in date when interest payment made. Using simple IAM interest paymant made on maturity date but using dicounted IAM interest paid on settlement date.