SRPM Convertible Bond Yield Calculation Examples
- Nancy Cohn (Deactivated)
This section shows the impact of different prices and call features on yield calculations in Eagle Accounting when you use the SRPM convertible option price method with convertible bonds. All examples in this section use the following security master information, and assume that the Select Values to be Calculated by STAR field (tag 7000) is set to calculate Traded Interest/Amort Yield/OID Yield/Trade Yield on the Trade panel.Â
Security Master Information
Security Master Information used for the examples follows.
Field Name | Value |
|---|---|
Issue Name | XYZ Convertible Bond |
Issue Description | XYZ Convertible Bond |
Primary Asset ID | XYZCB1234 |
Processing Security Type | DBIBFD |
Issue Country Code | US |
Asset Currency | USD |
Settlement Currency | USD |
Income Currency | USD |
Coupon | 5% |
Coupon Type Code | Fixed |
Day Count Basis | 30/360 |
Payment Frequency | Semi-annual |
Issue Date | 20040115 |
Dated Date | 20040115 |
First Coupon Date | 20040715 |
Last Coupon Date | 20110715 |
Maturity Date | 20120115 |
Maturity Price | 100 |
Convertible Indicator | Y |
Underlying Issue Name | XYZ Corp Equity |
Index Offset | 42.1052 |
Convertible Bond Purchased at a Discount
Convertible XYZ Convertible Bond is bought at a Price of 99.7 and the current price of the underlying security is 24.00. Eagle Accounting only calculates a target amortization price utilizing the underlying equity price or embedded equity option value when security convertible bond is purchased at a premium.
In this example, Eagle Accounting calculates and sets a target amortization price to 100 and an Amort Yield of 5.046015424911 and amortizes to Maturity Date (1/15/2012).
Convertible Bond Purchased at Premium with a Put Provision
XYZ Convertible Bond is bought at a Price of 101, and the current Price of the underlying security is 24.00. There is a Put provision on the bond for a price of 102 on 7/15/2006.
Calculated SRPM = 101.05 = (42.1052 * 24/10)
Eagle Accounting calculates an SRPM when the security is purchased at a premium. However, when there are call/put options, the call/put option price takes precedence over the SRPM in determining and calculating the amortization yield. Thus Eagle Accounting calculates an Amortization Yield of 5.326731234303 using the put price and date, and then amortizes out to the Put Date and Price, instead of the Maturity Date and SRPM. In the event that you do not "Put" the security on the Put Date, Eagle Accounting calculates a new yield based on existing reference data and the applicable amortization rule, and amortizes accordingly.
Eagle Accounting utilizes a Yield to Best approach when calculating a yield based on Put data. Yield to Best, as the name implies, is calculating the highest cash flow yield, or the best Put Price and Date information, that includes the Maturity Date.
Convertible Bond Purchased at Premium with a Call Provision
XYZ Convertible Bond is bought at a Price of 106, and the current Price of the underlying security is 25.00. There is a Call provision on the bond for a price of 102.0. The entity recognizes call data as part of the amortization calculation.
Calculated SRPM = 105.26 = (42.1052 * 25 / 10)
Eagle Accounting calculates an SRPM when the security is purchased at a premium. However, when there are call/put options, the call/put option data takes precedence over the SRPM in determining and calculating the amortization yield. Thus, Eagle Accounting calculates an amortization yield using the call price and date, and then amortizes out to the call date and price, instead of the Maturity Date and SRPM.