Day-Count Convention

AAA

DEFINITION of 'Day-Count 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 day-count convention.

INVESTOPEDIA EXPLAINS 'Day-Count Convention'

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.

RELATED TERMS
  1. Dirty Price

    A bond pricing quote referring to the price of a coupon bond ...
  2. Bank Discount Basis

    A quoting convention used by financial institutions when quoting ...
  3. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  4. Clean Price

    The price of a coupon bond not including any accrued interest. ...
  5. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. How To Compare Yields On Different Bonds
    Forex Education

    How To Compare Yields On Different Bonds

  2. If different bond markets use different ...
    Investing

    If different bond markets use different ...

  3. How long are credit ratings valid?
    Bonds & Fixed Income

    How long are credit ratings valid?

  4. What You Need To Know About Preferred ...
    Trading Strategies

    What You Need To Know About Preferred ...

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center