When do we take the exponent and when do we just take the proportional rate? I see both being used all the time…
Exponent for effective rates, proportional for nominal rates.
In my notes I’ve put when equitizing cash for example we use exponent. When calculating effective rate of a loan proportional. Are you saying that the questions specified if they are effective/nominal and that went over my head?
Libor is a nominal rate so that you will adjust it proportionally to days/360. Interest rates are effective rates so that you will adjust them with exponents based on a 365 Day year.