BSC
Based on the assumption that eligible charges include all Class 1-6 bonds besides US govt bonds, since US govt bonds have a factor of 0.0, does
R1 Charge incl. BSC = Basic R1 Charge * (1 + BSF)?
R1 Charge incl. BSC = Basic R1 Charge * (1 + BSF)?
Comments
If you're assuming a case where assets subject to basic charge consist only of Class 1-6 bonds, then your equation is correct. But ordinarily, there are 5 categories of assets subject to basic charge, out of which only Class 1-6 bonds are subject to BSF. Your equation would not hold in the presence of these other categories. See the summary table for R1 & R2 in the wiki.
Sorry, I meant to write R1 Charge for Bonds
So: R1 Charge for Bonds + BSC = Sum[Factor * Bond Carrying Val] * [1+BSF]?
Or are there bonds that are not subject to the BSF that are not US govt bonds (which have factor of 0)?
All non-US-govnt, nonaffiliated bonds fall in one of the riskiness classes 1 through 6, and they are all subject to BSF. See the wiki note:
https://www.battleacts6us.ca/wiki6us/Odomirok.6-7-BS#Bonds
So, your latest equation is correct.
Not sure if I am missing something here but Odomirok 2020 on Page 251says that BSF applies to unaffiliated bonds in classes 02 to 06, so excluding class 01 - please clarify what the correct application is as I am now confused esp working through the quiz RBC Charges (R1 & R2 - Fixed Income & Equity Asset Risk)
The excerpt you quoted says BSF applies to 01 (non-US govnt) and to 02-06 (unaffiliated). It doesn't say 01 is excluded.
Take a look at footnote 1 in this section of the RBC wiki article:
@graham I think the footnote you cited is actually referencing the wrong confusing bit in the textbook.
What I mean is the inclusion of "01 Unaffiliated bonds" in the example isn't at odds with the text description like the Wiki footnote suggests: they're just non-US gov't. But the inclusion of US Government (the line above Class 01 US Govt) surely is contradictory (they're neither Unaffiliated Class 02 through 06, nor Non-US Gov't Class 01).
US bonds is definitively class 1. Graham's assumption in the footnote was that class 1 was also included.