PURPOSE
This document explains how accrual is calculated for a bond in connection with accounting.
WHY IS THIS IMPORTANT?
This allows users to verify the formula and methodology used by CS Lucas to compute interest accrual for a bond.
FORMULA
When a bond security is created, system generates a coupon and principal repayment schedule.
The coupon PPM (Part Per Million) is the coupon that you received in monetary amount for a bond of 1,000,000 nominal amount. For example, for a 5 million holdings, the coupon amount is multiplied by 5.
The coupon PPM can also be changed in the Maintain Periodic Structure screen in case of a complex or unusual calculation.
The calculation of the bond accrued interest at different dates is set out as below. These examples are based on 1 million holdings of bond.
Complexity arise because VDate of coupon payment may occur after the End Date of coupon period.
Case 1 – where VDate falls on the End Date
Note: Computation of bond interest accruals is based on Coupon End Date. The start date of the coupon period is always from the last Coupon End Date.
Case 2 – where VDate falls after the End Date
Note: Computation of bond interest accruals is based on Coupon End Date. The start date of the coupon period is always from the last Coupon End Date.
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