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When you indicate whether a long term debt security compounds unpaid interest, you must identify the method for compounding interest. A Compounding Method

...

of All indicates that the Index Offset for floating rate securities is included in the compound interest calculation.

...

A Compounding Method of Flat indicates that the Index Offset for floating rate securities is not included in the compound interest calculation.

...

For more information about the Compound Information fields you can set up at the security level, see About Compound Information Fields.

This section provides detailed examples of each compounding method, using the security master information that follows.


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SMF Field

Value

Coupon

1.491880

Coupon Type Code

Floating Rate

Day Count Basis

ACT/360

Payment Frequency

Annual

Payment Frequency Code

12_M

Index Offset

26.0000

First Coupon Date

01-Jan-08

Compounding Indicator

Yes

Compounding Method

All

Compounding Frequency

1_M

First Compounding Date

01-Sep-07

Last Compounding Date

01-Jan-09

All Compounding Method Example

In this example, an open is booked for 15,000,000 par with Trade Date of 08/01/07 and Settle Date of 08/01/07, traded Interest of 154,749.40.

The daily accrual for the month of August is 729.95.

(15,000,000 * 1.75188%)/360 = 729.95

The total accrual for the month is 22,628.45.

729.95 * 31 = 22,628.45

On 09/01/07 the compound interest is included in the accrual calculation. For the Accrual calculation, PAR is equal to 15,177,377.85.

15,000,000 + 154,749.40 + 22,628.45 = 15,177,377.85

The daily accrual on 09/1/07 is 738.58.

(15,177,377.85 * 1.75188%)/360 = 738.58

The Compound Interest continues to accumulate monthly until the coupon is paid on 01/01/08. At that point the Accrual calculation uses the par amount of 15,000,000 to calculate the daily accrual until the next compound date on 02/01/08.

The last compound date is 01/01/09. Eagle Accounting continues calculating compound interest from 01/01/09 thru the next payment date.

Flat Compounding Method Example

This example uses the same security master information as that used in the previous example, except the Compounding Method is set to Flat.

The daily accrual for the month of August is 729.95.

(15,000,000 * 1.75188%)/360 = 729.95

729.95 * 31 = 22,628.45

On 09/01/07 the compound interest is included in the accrual calculation. The index offset is not included when calculating the compound accrual.

(15,177,377.85 * 1.49188%)/360 = 628.97

(15,000,000 * .26%)/360 = 108.33

Total daily accrual on 9/01/07 = 628.97 + 108.33 = 737.30

The Compound Interest continues to accumulate monthly until the coupon is paid on 01/01/08. At that point the Accrual calculation uses the par amount of 15,000,000 to calculate the daily accrual until the next compound date on 02/01/08.

The last compound date is 01/01/09. Eagle Accounting continues calculating compound interest from 01/01/09 through the next payment date.