Day-Count Convention


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.

BREAKING DOWN '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.

  1. Coupon

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

    The amount charged, expressed as a percentage of principal, by ...
  3. Clean Price

    The price of a coupon bond not including any accrued interest. ...
  4. Dirty Price

    A bond pricing quote referring to the price of a coupon bond ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when ...
  6. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
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