Anything LIBOR-based is based on actual/360. But what happens when a question specifies annual payments at LIBOR? Is the actual payment then based on rate * (365/360)? Schweser concept checker 11 for study session 13 (p. 208) gives the example of a counterparty paying L+10 on an annual basis. With LIBOR at 7%, the solution has the counterparty paying 7.1% of the principal amount. I think it should be 7.1 * (365/360). Am I wrong?
Any thoughts?
i am very temped to agree with you on that one, but not sure
Yes, I believe that is a good general rule. Just remember the BEY is 365 days.