In last month’s issue, we outlined the various day-count conventions that apply in different markets around the world. With some interest rates produced on a 360 day basis and others on a 365 day basis, it is important to make sure that if you have to compare interest rates that they are calculated on the same basis. This may require you to convert an interest rate on 360 day basis to 365 day basis, or vice versa.
\( Interest \: rate \: in \: new \: basis = interest \: rate \: in \: quoted \: basis \: \times \: \frac{number \: of \: days \: in \: desired \:period}{number \: of \: days \: in \: quoted \: year}\)
To convert 10% on 365 day basis to 360 day basis
\(Interest \: rate \: on \: 360 \: day \: basis = 10 \: \times \: \frac{360}{365} = 9.86 \)
Conventional calculator
Using a conventional calculator, press the following buttons:
- 10 x 360 ÷ 365 = this should give the result 9.86
Scientific calculator
Using the scientific calculator on a Windows computer (Start, Programs, Accessories, Calculator, View, Scientific), you would need to press the following keys:
- 10 * 360 / 365 = this should give the result 9.86
HP12C
Using an HP12C (or a similar calculator using Reverse Polish Notation):
- 10 ENTER 360 x 365 ÷ this should give the result 9.86
To convert 10% on 360 day basis to 365 day basis
\(Interest \: rate \: on \:365 \:day \:basis = 10 \: \times \: \frac{365}{360} = 10.14 \)
Conventional calculator
Using a conventional calculator, press the following buttons:
- 10 x 365 ÷ 360 =this should give the result 10.14
Scientific calculator
Using the scientific calculator on a Windows computer (Start, Programs, Accessories, Calculator, View, Scientific), you would need to press the following keys:
- 10 * 365 / 360 = this should give the result 10.14
HP12C
Using an HP12C (or a similar calculator using Reverse Polish Notation):
- 10 ENTER 365 x 360 ÷ this should give the result 10.14
You will notice that an instrument with an interest rate quoted on a 365 day basis will earn slightly more interest than an instrument with an interest rate quoted on a 360 day basis.
