Account CBDEMO is purchasing 1,000,000 par of XYZ Corp Convertible Bond (the sample bond set up previously in Set Up the Convertible Bond SMF Record), with a Trade Date of 1/16/2004 and a Settlement Date of 1/17/2004, at a Price of 165.093 (purchased at a premium).
Because the target amortization price is calculated after you submit the trade, the amortization yield and trade yield displaying on the panel do not reflect the impact of underlying price or embedded equity option value entered.
After the trade is processed, Eagle Accounting calculates the amortization yield utilizing the SRPM or Embedded Equity Option Value.
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The following table shows the values for the sample buy in the Open Debt Bond panel.
Entity Information | |
Entity ID(1163:S) | CBDEMO2 (CBDEMO2) |
Entity Name(1164:S) | CBDEMO2 |
Base Currency(86:S) | USD |
Issue Information | |
Trade Date(35:S) | 2004 11 16 |
Accounting Date(36:S) | 2004 11 16 |
Monthly Accounting Date(4733:S) | 2004 11 16 |
Settlement Date(37:S) | 2004 11 17 |
Event Type(55:S) | BUY |
Long/Short Indicator(15:S) | L |
Cross Reference Type(1234:S) | INTERNAL |
Issue Name(961:S) | XYZ CONVERTIBLE BOND |
Ticker(13:S) | mpsxyz |
Cross Reference ID(1233:S) | XYZ CONVERTIBLE BOND (INTERNAL) (XYZ CONVERTIBLE BOND) |
Instrument Type(11:S) | FI |
Security Type(82:S) |
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Issue Currency(85:S) | USD |
Maturity Date(38:S) | 2012 01 15 |
Coupon Rate(70:S) | 5.000000 |
Convertible Indicator(1531:S) | Y |
Accounting Information | |
Select Values to be Calculated by STAR(7000:S) | Traded Interest/Amort Yield/OID Yield/Trade Yield |
Accrued Interest Type(3715:S) | CUM |
Par Value/Current Face(40:S) | 1,000,000.000000 |
Price(45:S) | 165.09300000 |
Amort Yield(75:S) | -3.060192856634 |
Trade Yield(9430:S) | -3.060192856634 |
OID Yield(39:S) | |
Principal(165:S) | 1,650,930.000 |
Implied Commission Indicator(78:S) | NO |
Commission(47:S) | 0.00 |
Tax Amount(46:S) | 0.00 |
Stamp Duty Tax(51:S) | 0.00 |
Other Fee(3752:S) | 0.00 |
Ex-Interest Coupon Recognition Date(16311:S) | Coupon Date (N) |
Traded Interest(49:S) | 16,944.440 |
Local Net Amount(50:S) | 1,667,874.440 |
Settlement Currency(63:S) | USD |
Settlement Net Amount(64:S) | 1,667,874.440 |
Local to Base FX Rate(87:S) | 1.000000000000 |
Base Net Amount(478:S) | 1,667,874.44 |
Underlying Security Market Price(319:S) | 36.750000 |
Conversion Premium(5727:S) | |
Settlement Information | |
Settle Trade Indicator(58:S) | NO |
Broker Name(1235:S) | EAGLE |
Broker Code(88:S) | EAGLE |
SRPM with Same Asset Currency
Calculation of Stated Redemption Price and Conversion Premium for Trade Date of the purchase of a convertible bond, when the Asset Currency of the convertible bond equals the Asset Currency of the underlying security.
The Stated Redemption Price at Maturity (SRPM) is calculated using the formula:
Conversion Ratio * Market Price of Underlying Shares / 10
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The reason for dividing by 10 in the prior calculation is that the Conversion Ratio is expressed in number of shares per 1,000 units of par, and the Stated Redemption Price at Maturity is expressed as a percentage. The result of the equation should be rounded to the same number of decimal places as the bond's Asset Currency. |
The Conversion Premium is calculated using the following formula:
Purchase Price of the Bond - SRMP
The Underlying Sec Market Price is the latest available price for the underlying security in relation to the Trade Date of the Convertible Bond. It is derived from a pricing date that is less than or equal to the Trade Date.
The results of this formula should be rounded to the same number of decimal places as the Asset Currency of the convertible bond.
To illustrate, a portfolio with a Base Currency of USD buys a convertible bond for XYZ Corp., which has XYZ Corp. Common Stock as the underlying security. Both the bond and the stock have an Asset Currency of USD. The information related to the bond's conversion feature follows in the following figure.
EEOV with Same Asset Currency
If you wanted to use the same sample data found in Example 1: SRPM to achieve the same results in Eagle Accounting, you would need to enter a conversion premium of 54.74. This allows Eagle Accounting to calculate and set a target amortization price of 154.74 ( 100 maturity price value + 54.74 Embedded Option Value ).
SRPM where Asset Currency Differs
The calculation of the Stated Redemption Price and Conversion Premium for Trade Date of the purchase of a convertible bond, when the Asset Currency of the convertible bond does not equal the Asset Currency of the underlying security follows:
The SRPM uses the following formula in this scenario:
Conversion Ratio * Market Price of Underlying Shares / 10 / Exchange Rate
The results of this formula should be rounded to the same number of decimal places as the Asset Currency for the convertible bond. The exchange rate represented in the formula above, is the rate of the bond currency, to the rate of the underlying security currency, on the date the SRPM is calculated for.
The Conversion Premium uses the following formula:
(Purchase Price of the Bond - SRPM)
The results of this formula should be rounded to the same number of decimal places as the Asset Currency for the convertible bond.
To illustrate, a portfolio with a Base Currency of USD buys a convertible bond for XYZ Corp., which has XYZ Corp. Common Stock as the underlying security. The bond has an Asset Currency of USD, and the stock has an Asset Currency of GBP. The information related to the bond's conversion feature follows in the following figure.
EEOV where Asset Currency Differs
If you wanted to use the same sample data found in Example 2: SRPM to achieve the same results in Eagle Accounting, you would need to enter a conversion premium of 6.07. This allows Eagle Accounting to calculate and set a target amortization price of 106.07 ( 100 maturity price value + 6.07 Embedded Option Value ).
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