Recognize Call Date and Prices (tag 3939). Specifies whether the system factors the call dates and prices into the amortization calculation. The system uses the calls, puts, sink, and pre-refunded information in the Schedule table for yield calculation, but processes calls, puts, sink payments, and transactions based on information in the Corporate Action table. Options include:
- Yield to Worst Call Date. Eagle Accounting calculates the yield and amortization target date to the call date and price that gives the lowest yield for the tax lot. This yield type is known as Yield to Worst or Yield to Most Conservative. If the security is not called at the worst call date, Eagle Accounting calculates to the next worst call date. If no call date is available after the worst call date, Eagle Accounting amortizes to maturity date. When calculating a Yield to Worst, Eagle Accounting includes the yield to maturity date and price in the calculation, so in some cases, the Yield to Worst could be the maturity date and price.
If you recognize both Yield to Worst Call Date and Yield to Best Put Date in the amortization rule and a security has both call and put features, Eagle Accounting uses an iterative method to determine the most conservative yield. For details, see "Example: Determining Yield for a Schedule with Both Puts and Calls."
- Yield to Next Call Date. Eagle Accounting calculates the yield and amortization target date to the next available call date and price in the schedule. If the security is not called at the next call date, Eagle Accounting calculates to the next call date in the schedule. If no call date is available after the last call date in the schedule, Eagle Accounting amortizes to maturity date.
In the event that the next call date and price forces Eagle Accounting to amortize away from par, Eagle Accounting ignores that call date and price and selects the next call date and price, continuing this search until it finds a call date and price that does not cause it to amortize away from par. If all of the call dates and call prices would force the tax lot away from par, then it calculates a yield and amortization based upon the maturity date and maturity price.
If you select Yield to Next Call Date, in Recognize Put Date & Prices field, you can only select Yield to Next Put Date or Do Not Recognize Put. If you select both Yield to Next Call Date and Yield to Next Put Date, Eagle Accounting uses the Call and Put data in order of their effective date. If there is a call date and put date on the same effective day, then put data has precedence over call data, thus Eagle Accounting uses the put data.
- Yield to Next Call Date with Suspense. Eagle Accounting amortizes to the next call date and price while suspending any amortization of premium or accretion of discount if the next call date and price would cause the tax lot to amortize away from par.
For example, in the case of a Market Premium purchase, if the purchase price is lower than the call price of the next call date in the schedule, Eagle Accounting suspends amortization until after that call date and calculates a new amortization yield prospectively. Similarly, in the case of a Market Discount purchase, if the purchase price is higher than the call price on the next call date in the schedule, Eagle Accounting suspends amortization until after that call date and calculates a new amortization yield prospectively.
In the case of a Market Discount purchase processing OID amortization, Eagle Accounting uses the adjusted issue price instead of the purchase price to determine whether it suspends amortization or process amortization to the next call date and price.
If you select Yield to Next Call Date with Suspense, you can only select Yield to Next Put Date with Suspense or Do Not Recognize Put in the Recognize Put Date & Prices field. Be aware that if you select both Yield to Next Call Date with Suspense and Yield to Next Put Date with Suspense and a call and a put occur on the same effective date, put data has precedence over call data, and Eagle Accounting uses the put data.
- Do not Recognize Call Feature. When the Recognize Call Date and Prices field is set to Do not Recognize Call Features, Eagle Accounting ignores the call schedule located in the schedule table for the purpose of calculating an amortization yield and amortization target date.
- Yield to Best Call with Suspense. The system selects the call/put date and price between the yield date and maturity date that calculates the highest yield. Maturity date, maturity price, maturity and any pre-refunding dates are included in the calculation. Call dates/prices, put dates/put prices and puts after any pre-refunding date are ignored. If this call/put price would cause amortization to move away from the bond's par value, hold amortization constant until this call/put date. When the call or put is not executed, repeat the process to find the highest remaining yield and its call or put date. While this calculation is intended for use with taxable securities purchased at a premium, it operates on any holding that meets the amortization/accretion rule's selection criteria.
Date | Type | Yield | Call/Put Price | Trade Price |
---|---|---|---|---|
1/1/09 | Put | 7.000% | 79.6000 | 80.00000 |
1/1/10 | Put | 7.100% | 79.3373 | 80.00000 |
1/1/11 | Call | 6.500% | 77.4406 | 80.00000 |
1/1/12 | Call | 6.400% | 76.1274 | 80.00000 |
1/1/13 | Put | 8.000% | 82.3466 | 80.00000 |
1/1/14 | Put | 8.500% | 85.9432 | 80.00000 |
1/1/15 | Call | 8.250% | 85.3948 | 80.00000 |
1/1/20 | Maturity | 8.759% | 100.00000 | 80.00000 |
To determine the yield based on the sample schedule, the following steps occur:
Start by calculating the yield to maturity at 1/1/20. If no puts or calls are done, this gives you a yield of 8.759%.
At 1/1/15, the issuer knows that the call at a price of 85.9432 and yield of 8.250% is a better deal for the issuer than waiting for the maturity at a price of 100 and yield of 8.759%.
At 1/1/14, you know that if you wait until the 1/1/15 call, the issuer will call the security then. You see that you can put the holding at price 85.9432 and yield 8.50% which is better, so you would do it.
At 1/1/13, you see that you can put the security giving a yield of 8.0%. You will do better by waiting until 1/1/14.
At 1/1/12, the issuer sees that the issuer can call at a yield of 6.40%, clearly better than waiting for you to put on 1/1/14.
At 1/1/11, the issuer sees that the issuer can call at a yield of 6.5%. This is worse for the issuer than waiting until 1/1/12 so the issuer plans to wait.
At 1/1/10, you see that you can put at yield 7.10% which saves you from having to take the 1/1/12 call at yield 6.40%
At 1/1/09, you see that you can put at yield 7.0% but know that you will do better by waiting until 1/1/10.
The yield determined by this process is 7.1%.
So, following this method, you know you will never do worse than the call or put yield finally selected, unless you choose to, regardless of what the issuer chooses to do.
Notice that if there are no puts, this method produces the yield to worst call and that if there are no calls, this method produces the yield to best put.
Example 2
- Yield to Best Call with Suspense
A fund elects to amortize premium with the Yield to Best Call with Suspense option selected for the amortization rule's Recognize Call Date and Prices field. The Fund purchases a security at a price of 102. The security has the following call schedule and resulting yield.
Call Date | Call Price | Yield |
---|---|---|
01/15/2013 | 106.28 | 14.17225 |
01/15/2014 | 104.19 | 9.397558 |
01/15/2015 | 102.09 | 8.2333804 |
01/15/2016 | 100 | 7.735527 |
01/15/2017 (Maturity Date) | 100 | 7.85198 |
The Final results, all the calls above the purchase price of 102 are ignored as amortizing to those call dates and prices would cause Eagle Accounting to go away from Par. Eagle Accounting calculates the best yield based upon the remaining calls. In this scenario, the best yield to call is 7.85198 (maturity date). Eagle Accounting begins amortizing on 01/15/2015, as this is the last call date above the purchase price. Eagle Accounting Date amortizes from 102 down to 100 using a Yield of 7.85198.
Example 3
- Yield to Best Call with Suspense
A fund has elected to amortize to Yield to Best Call with Suspense option selected. Fund purchase a security at a price of 90. The security in question has the following call schedule and resulting yield.
Call Date | Call Price | Yield |
---|---|---|
01/15/2014 | 104.19 | 18.260327 |
01/15/2015 | 102.09 | 11.196092 |
01/15/2016 | 100 | 8.674696 |
01/15/2017 (Maturity Date) | 100 | 7.857649 |
Results. Eagle Accounting amortizes to 01/15/2016 Call Date, as this gives the highest yield. Eagle Accounting amortizes to 01/15/2016 at a price of 100. Eagle Accounting begins to amortize on Settlement Date to 01/15/2016 as the target date.