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Day-Count Convention
What does it mean?
A system used to determine the number of days between two coupon dates, which is important in calculating accrued interest and present value when the next coupon payment is less than a full coupon period away. Each bond market has its own day-count convention.
In Other Words...
There are several different types of day-count conventions. For example, a 30/360 day-count convention assumes there are 30 days in a month and 360 days in a year. An actual/actual day-count convention uses the actual number of days in the month and year for a given interest period.
This concept might sound illogical. After all, regardless of the particular bond market there will always be 365 days in a year! Nevertheless, these conventions are standards that have developed over time and help to ensure that everybody is on an even playing field when a bond is sold between coupon dates.
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Related Terms
Accured Interest | Clean Price | Coupon Date | Dirty Price | Interest Rate | Present Value
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C | D |
E | F |
G | H |
I | J |
K | L |
M | N |
O | P |
Q | R |
S | T |
U | V |
W | X |
Y | Z
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