Effective Annual Rate?

CFA Level III
#1

Hi,

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

Thanks!

#2

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

#3

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.

#4

When we need to use effecitve annual rate at L3?