Interest rate basis
From Wikipedia, the free encyclopedia
In accounting and finance, the accrual basis of an interest calculation is a convention whereby an interest amount is calculated from the principal, expressed in units of a specified currency, and a percentage, and an agreed start and end date. The more commonly used conventions are listed below.
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[edit] Semi-Annual
This is commonly used for bond coupon calculation.
[edit] Actual/365
where the start date t1 and end date t2 are expressed as Julian days.
Actual/365 is commonly used in the sterling markets and for "Commonwealth" currencies. In the United Kingdom, it is known as "money market basis".
[edit] 30/360
This method assumes every year has 360 days, and every month 30 days, computed as
where d1 and d2 are the days of the start month (m1) and end month (m2) respectively.
This convention is the US market standard, also (confusingly) known as "money market basis".
[edit] Actual/360
where the start date t1 and end date t2 are expressed as Julian days.
[edit] Other bases
Other bases include Actual/Actual.
