When you invest on Percent, most of your investments will have an expected fixed rate of return1. Historically, the rate we used to reference the expected interest of your investments was the Annual Percentage Yield, or APY. This rate determined a fixed percentage of interest that an investment would yield in a year, presuming reinvestment of any principal repaid and any interest received every month at that same rate. To increase simplicity for our investors, beginning in February, 2025, new deals on Percent will be priced with a Coupon Rate and we will no longer be using APY.
What is Coupon Rate?
On Percent, an investment’s Coupon Rate determines how much interest you are expected to earn over the term of that note and no longer assumes that interest is reinvested at the same rate upon distributions. Similar to APY, Coupon Rate is also an annualized rate, but the math is much more intuitive.
Coupon Rate Expected Returns Example
Investment Assumptions:
- Investment Amount: $10,000
- Coupon Rate: 10.00%
- Coupon Payment Frequency: Monthly
- Note Term: 9 months
Step 1: Calculate the 1-month rate from the coupon rate:
As the coupon rate is an annualized rate, to calculate the 1-month equivalent rate, we divide the coupon rate by 12 months:
= 10.00% / 12 months
= 0.833% for the 1-month rate
In this example, the investor will receive 0.833% x $10,000 = $83.30 each month before any fees (assuming principal amount remains constant, and no principal is repaid). If the note pays quarterly interest, then the equivalent quarterly payment will be 0.833% x 3 x $10,000 = $249.90 each quarter (and also assuming no changes to principal).
Step 2: Calculating the expected interest rate adjusted for the note term:
If this investment has a term of 9 months, you can calculate the expected returns for this term using the following equation:
= [1-month rate] x Note Term
= 0.833% x 9 months
= 7.500% for the 9-month rate
Step 3: Calculating the returns during note term:
To calculate the expected return on this investment, assuming interest will not be automatically reinvested, the following equation would apply:
= [[9-month rate + 1] * Investment Amount]
= [[7.500% + 1] * $10,000]
= [1.0750 * $10,000]
= $10,750
Assuming this is a performing note, and all principal is repaid at maturity, the total return for a $10,000 investment with a 10.00% coupon rate in a 9 month note term is $10,750.
How does it compare to APY?
A 10.00% APY means your investment grows by 10.00% annually including interest on previously earned interest, whereas a 10.00% Coupon Rate means you’ll receive 10.00% of your initial investment as interest payments over the course of a year, assuming the interest payments do not compound.
Mathematically, in the example, the main difference in the calculation would be the initial conversion of going from APY to the 1-month equivalent rate.
If the deal instead of being marketed with a 10.00% coupon rate had a 10.00% APY, the way you calculate the 1-month rate would be:
= [[(1+0.10)^(1/12)]-1] x 100 = 0.797%
From this, you can extract the equivalent annual rate of 0.797% x 12 = 9.569%. This means that a 10.00% APY, understanding that interest and principal are not being automatically reinvested, yields the same returns to an investor as a deal with a 9.569% coupon rate. The returns to the investor are not changing, just the way the expected returns are displayed.
To help you understand the relationship between APY and Coupon Rate, you can use this calculator to convert between the two:
APY to Coupon Rate Calculator
For ease of comparison in understanding the new coupon rate displays, we have included the below table of equivalent conversions from APY to Coupon Rate, assuming monthly interest payments.
| APY | Coupon Rate |
| 10.000% | 9.569% |
| 11.000% | 10.482% |
| 12.000% | 11.387% |
| 13.000% | 12.284% |
| 14.000% | 13.175% |
| 15.000% | 14.058% |
| 16.000% | 14.934% |
| 17.000% | 15.804% |
| 18.000% | 16.666% |
| 19.000% | 17.522% |
| 20.000% | 18.371% |
In Excel, this can easily be calculated by using the Nominal formula. In this case, for the 10.00% APY, the equivalent coupon rate can be calculated by typing in excel:
=Nominal(APY,Periods)
=Nominal(10%,12)
=9.569%
Why this Change?
We recognized that principal repayments and interest distributions were not always available to be reinvested into notes with the same interest rate, which led us to simplify our process. This change aims to make calculations easier for investors, borrowers, and underwriters alike. By introducing coupon rates, we align with our mission to bring greater transparency to the market as coupon rates are the standard in public fixed income markets.
Does this affect my investments?
No. This only changes how we are marketing transactions. Historically for interest distributions, APY’s were automatically converted into an equivalent coupon rate. With this change, there will be no need for any adjustments and the rate marketed will more closely match the implied rate of return on a performing investment.
What do these changes look like in the Percent app?
In the screenshot above, you can see where Coupon Rate will replace APY for new deals in the deal pages. For deals previously launched before Coupon Rate was introduced, you will also be able to see the previously stated APY listed below Coupon Rate.
On your Portfolio page, the table listing all deals you have participated in will automatically display the Coupon Rate. If you prefer to see APY (available for historical deals), you may select APY from the “Columns” picker, highlighted above.
Does this change servicing fees?
No. Servicing fees were calculated as 10% of the interest distributions, and this will remain the same as these were calculated on the implied coupon rate.
In the example above (assuming $10,000 investment, with a 10.00% coupon rate, with a 9 month note term) with total interest distributions of $750 the total servicing fees of 10% are equal to $75, which is equivalent to $8.3 per month, resulting in total net interest distributions of $675 during the life of the note, or $75 monthly.
How can I earn interest on Percent?
Percent offers short and medium term, interest-accruing investments for accredited investors, allowing you to potentially earn as much as 20% in deals as short as 6 months. To learn more and start investing, join Percent today.
There is always the risk of loss in an investment, but conducting proper research and due diligence can help mitigate this risk.
1 Currently, the two types of investment opportunities on Percent that do not have an expected fixed rate of return assigned at launch are 1) Percent Blended Notes, and 2) Limited Partnership interests.