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In addition, the rate reset array logic incorporates Look Back Days, the Rate Reset Cap, Rate Reset Floor, Rate Reset Change Cap, and Rate Reset Change Floor when setting the rate value for a given date. Note that the Rate Reset Change Cap and Floor values are a relative change from the last rate, while the Rate Reset Cap and Floor values are an absolute cap/floor. At each new date in the array, the earnings code checks the coupon value for the following:
- The new rate does not break the Rate Reset Change Cap/Floor rule. For example, if Current Rate is 4% and Rate Reset Change Cap is 1, a New Rate of 5.25% is not allowed, and instead the New Rate is 5%. Similarly, if Current Rate is 4%, Rate Reset Change Floor is 1.2 and New Rate from variable rate table is 2.5%, New Reset Rate is set at 2.8% (4 minus 1.2).
- The new rate does not go above or below the Rate Reset Cap or Floor. For example, if the Rate Reset Cap is 6% and the rate available from the Variable Rate Table is 6.2%, the New Rate is set at 6%.
- Both of the above tests must pass. For example, Current Rate is 5, Rate Reset Change Cap value is 1, and Rate Reset Cap value is 5.5; If the New Rate in variable rate table is 5.75, the rate in the Reset Array is set to 5.5.
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