What is 'DayCount Convention'
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 daycount convention.
BREAKING DOWN 'DayCount Convention'
There are several different types of daycount conventions. For example, a 30/360 daycount convention assumes there are 30 days in a month and 360 days in a year. An actual/actual daycount 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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