On the forwards reading right now. I read some other threads on this but none had a satisfactory answer.
How does one know when to use a 360 day year as opposed to 365? And how does one know whether we should be doing 1.05^(150/360) as opposed to 1+0.05*(150/360)?
There doesn’t seem to be any guidance on when to use what…
If they say that the interest rate is LIBOR, it’s nominal with a 360-day year.
Anything else is effective with a 365-day year, unless they specifically say otherwise.
Heres a direct link to a more thorough explanation on S2000magician’s website:
http://financialexamhelp123.com/nominal-vs-effective-interest-rates/
And how does one know whether we should be doing 1.05^(150/360) as opposed to 1+0.05*(150/360)?
Whats the answer for that?? Please…
I believe that I answered that above:
If they say that the interest rate is LIBOR, it’s nominal with a 360-day year. Use 1 + r*(150/360).
Anything else is effective with a 365-day year, unless they specifically say otherwise. Use (1 + r)^(150/360).
Well that’s a lot easier to remember than I thought it’d be.
Does “anything else” include EURIBOR and TIBOR, or would we treat those like LIBOR and use 360 day year?
I believe that all of the BORs use 360.
I was being a little bit glib (but only a little bit).
lol, duly noted. Thanks 
You’re welcome.
What about T-Bills and Eurodollar futures? Don’t we use 360 days for those?
Thank a lot S2000magician.
Always very helpful.
Yes. However, neither is likely to show up on the Level II exam.
My pleasure.