A day-count convention measures how interest accrues on investments like bonds, notes, mortgages, and loans over time. Specifically, a day-count convention is a system used in the 澳洲幸运5官方开奖结果体彩网:bond market to determine the number of days and the amount of accrued ಌinterest between two coupon dates (when the next coupon date is less than a full coupon period away).

The calculation is important to traders of various bonds because, when a bond is sold, the seller is entitled to a portion of the 澳洲幸运5官方开奖结果体彩网:coupon payment. The day-🐭count con🔜vention determines precisely how much.

Since there is no central authority to define day-count rules across all 澳洲幸运5官方开奖结果体彩网:securities, there is no standard terminology to apply to all situations. However, the International Swap Dealers Association has gathered and documented common methods. The three to und꧃erstand are conventions known as "30/360," "Actual/360," and "Actual/Actual."

30/360

The notation used for day-count ꧂conventions shows the number of days in any given month divided by the number of days in a year. The result represents the fraction of the year remaining that will be used to calculate the amount of interest owed.

The 30/360 notati♛on is the easiest convention to use because it assumes that there are 30 days in every month, even though some moཧnths actually have 31 days. For example, the period from May 1 to August 1 is considered to be 90 days apart, according to the 30/360 convention, but the actual number of days is higher because both May and July have 31 days.

Given the simplicity of the 30/360 day-count convention, it is often used in calculations of 澳洲幸运5官方开奖结果体彩网:accrued interest for corporate, agency, and 澳洲幸运5官方开奖结果体彩网:municipal bonds. It is also commonly used by investors of 澳洲幸运5官方开奖结果体彩网:mortgage-backed securities.

Actual/360 and Actual/365

Actual/360 is most commonly used when calculating the accrued interest for 澳洲幸运5官方开奖结果体彩网:commercial paper, T-bills, and other short-term debt instruments that have less than one year to expiration. It is calculated by using the actual number of days between the two periods, divided by 360.

As you probably guessed, actual/365 is similar to the actual/360, except that it uses 365 as the denominator. Actual/365 is most commonly used when pricing U.S. government 澳洲幸运5官方开奖结果体彩网:Treasury bonds.

Actual/Actual

Actual/actual convention uses the actual number of days between two periods and divides the result by the number of days in the year, rather th𒁃an assuming that each year is made up of 360 or 365 days.

Of course, we know that in reality there are always 365 🏅days in a year (with the exception of leap years), but these conventions are standards that have developed over time✃ and help to ensure that everyone is on the same playing field when a bond is sold between coupon dates.