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Fair Value Model Output and Analysis

Fair Value Model

Fair Value Model FAQ

Hedge Accounting Tool

Effective Interest Rate Model

Lease Management Tool

Goodwill Impairment Tool

Sample Selection Tool

Black-Scholes Model

Binomial Model

Volatility Tool

Forfeiture & Expected Life Tool

Management Tool

Model Comparison


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 >

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