Daily Life-to-Date Calculation (1st Principle)

The first principal of Eagle Accounting's fixed income processing methodology to consider is the daily calculation of life-to-date earnings on a security, based on the current coupon period-to-date reference information.

Whenever the Earnings Processes (accruals, amortization, tax withholding, coupon spreading, and so on) are invoked in Eagle Accounting, Eagle Accounting calculates the life-to-date values for each piece of earnings for the Earn Thru Date of the security, based upon current coupon period reference, entity, and accounting basis information. Eagle Accounting then subtracts life-to-date earnings values from the prior earn thru date, to create the current Earn-Thru Date's daily delta amounts.

By taking this approach, the Eagle Accounting earnings process always brings the security earnings values in line; this is of particular importance when the data used to process and create fixed income earnings values changes during the coupon period.

For example, if:

• The security master record was created with an incorrect Payment Frequency, or
• A backdated variable rate was entered for a prior date in the coupon period,
• An amortization or tax withholding rule became effective, or
• You made a change to an entity election such as tax reclaim processing, which was not set up at the time of the prior earn thru date,

then, Eagle Accounting uses these values in the calculation of earnings to bring the position in line the next time earnings are run. Thus it correctly reflects the current coupon period reference information without user intervention.

A second benefit of this approach is that when a trade entered in Eagle Accounting has an incorrect interest purchased, Eagle Accounting correctly brings the security's accrual values in line. When the coupon is created at the end of the period, Eagle Accounting creates a coupon at the full expected value.

The third benefit of this approach is that rounding errors do not occur for earning values. Coupon payments are created for the full expected and exact coupon amount on the coupon drop date. Rounding errors do not occur for amortization/accretion amounts, thus amortized cost is always equal to redemption price on redemption date minus one, regardless of what reference or entity/accounting basis data changed during the coupon periods.

When reference data and/or amortization rules change, Eagle Accounting automatically recalculates the amortization yield to ensure that the position is calculating an amortization yield based upon the current coupon period reference information and the applicable amortization rule.

The following examples, Example A - Daily Life-to-Date Calculation, Example B - Daily Life-to-Date Calculation, and Example C - Change Amortization Rule. illustrate this principle.