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. A Compounding Method of Spread Exclusive indicates that the system compounds the index portion of a floating (or inverse floating) interest rate and accrues the spread portion of the rate normally without compounding. 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.
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 |
Maturity Date | 01-Jan-10 |
Compounding Indicator | Yes |
Compounding Method | All |
Compounding Frequency | 1_M |
First Compounding Date | 01-Feb-07 |
Last Compounding Date | 01-Dec-09 |
All Compounding Method Example
In this example, where the Compounding Method is set to All, an open is booked for 15,000,000 par with a Trade Date of 01/01/07 and Settle Date of 01/01/07.
The daily accrual for the month of January 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 02/01/07 the compound interest is included in the accrual calculation. For the Accrual calculation, PAR is equal to 15,022,628.45.
15,000,000 + 22,628.45 = 15,022,628.45
The daily accrual on 02/1/07 is 731.05.
(15,022,628.45 * 1.75188%)/360 = 731.05
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 12/01/09. Eagle Accounting continues calculating compound interest from 01/01/09 through 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 January is 729.95.
(15,000,000 * 1.75188%)/360 = 729.95
729.95 * 31 = 22,628.45
On 02/01/07 the compound interest is included in the accrual calculation. The index offset is not included when calculating the compound accrual.
(15,022,628.45 * 1.49188%)/360 = 622.55
(15,000,000 * .26%)/360 = 108.33
Total daily accrual on 02/01/07 = 622.55 + 108.33 = 730.88
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 12/01/09. Eagle Accounting continues calculating compound interest from 01/01/09 through the next payment date.
Spread Exclusive 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 Spread Exclusive. This method essentially treats the index and index offset as separate accrual streams.
The daily accrual for the month of January is 729.95.
(15,000,000 * 1.75188%)/360 = 729.95
729.95 * 31 = 22,628.45
On 02/01/07 the compound interest is included in the accrual calculation. Only the interest accumulated by the index accrual is compounded. The index offset is not included when calculating the compound accrual.
The total index accrual from January is 19,270.12.
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