When to use actual date and when to use 360.

CFA Level III
#1

Schweser Book4 Page 215, Q9:

It is asking to calculate the effective interest payment.

The answer have used 184 and 181 for February 1 and Augest 1 date count. And calculate the interest payments using 184/360 and 181/360. Which in total is 365/360. It’s actually paying more than stated LIBOR.

I am just confused why shouldn’t we just use 180/360??

Any one can clearify this for me?

#2

It’s my understanding that you should:

Use 360 only for LIBOR calculations. i.e., if 30-day LIBOR is x%, then the effective interest over that period is x%*30/360.

Use 365 for everything else.

#3

I agree with CCC. use 30/ 360 with Libor only. all else actual daycount.

#4

Thanks for the reply. However, just what do you mean use for LIBOR.

The example I mentioned used the 184/360 times LIBOR rate(plus 240 basis point), do you consider this a LIBOR calculation?

IF not, what does consider to be LIBOR calculation, and what doesn’t?

I am really confused guys.

THanks for helping

#5

Yes.

#6

Then why using 184 instead of 180?

#7

You have to count the actual days in the period, then divide it by 360 if it’s a LIBOR calculation. That’s just the convention.