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What is meant by Actual/360 or Actual/365 convention?
This is a method of translating calendar time into years for the purpose of determining applicable cashflow using interest rate quoted on per annum basis. For example, what should be the cashflow between the dates Jan 20,2008 to Mar 20,2008 if the interest quoted on per annum basis is 5% and principal amount=100$?
Actual days between the two dates=62 days According to Actual/360 conevtion, the payment will be: 100*(1+0.05*62/360)
While according to Actual/365 conevtion, the payment will be: 100*(1+0.05*62/365)
