Main Menu | Adv. Income Shock | Assumptions | Reinvestment Rates
During the modeling process, the Advanced Income Shock module will project cash flows (principal and interest flow) on all existing items. It will compute ratios of how much of the cash flows belong to fixed, floating and adjustable rate items. In order to project the balances at the target levels set by the user, a reinvestment amount is computed. This reinvestment amount is divided into fixed, floating and adjustable reinvestment based upon the ratios computed on the existing item cash flows.
To project accurate income, reinvestment rate or repricing rate assumptions should be made by the user. If none are made, the system will default to a reinvestment rate equal to the weighted average rate in the account. These reinvestment rates are used to compute earnings on the reinvestment amounts. Reinvestment income is computed on an actual/actual interest basis. Income on the items is computed based upon the interest basis of the individual item.