Effective Annual Rate?


Why is Effective Annual Rate calculated by taking 365 days in a year whereas any other interest rate question assumes 360 days.


360 days only applies to LIBOR. Any other kind of rate is valid for 365 days.

Which is a _ nominal _ rate, not an effective rate.

Note that bank discount yields and money market yields also use 360-day years, which, admitedly, don’t don’t appear much at Level III.

When we need to use effecitve annual rate at L3?