Sample exam 2, #21

Not sure if there’s already been a post… related LOS is 42(d) To get the Effective Annual Rate, the answer key uses a 360-day count for the exponent: = [(loan principal + interest) / (loan principal * effective option cost)]^(360/180) - 1 I thought it’s a 365-day count? That’s straight out of the readings… Would give a different answer.

thats probably a boo boo by CFAI. my guess is the question was dealing with libor, where you’d use 360 with straight division, but your right to compound to EAR you should use 365. The answer difference would be so small though I doubt it’s an issue.

Actually, their answer B is exactly the EAR with the 365-day convention… so, I put B and got it wrong. That’s why I mentioned

I think the answer is wrong.

Can someone confirm if it is correct to use 365 day or 360 day for effective interest rate. Sample exam 2, Q21 answer use 360 day. Why ??

think it should be 365, saw 365 within Schweser example

it’s definitely 365 days. is right out of the CFA text.