R19.P1.T3.FIN_PRODS_HULL_Ch6_Topic:DAY_COUNT_CONVENTIONS

[gargi.adhikari]

In reference to R19.P1.T3.FIN_PRODS_HULL_Ch6_Topic: DAY_COUNT_CONVENTIONS :-
Hi,
I was revisiting this topic and have some questions on the example illustrated below. We are using the Day Count Convention= Actual/Actual. The Days Since is shown to be 54 between Jan1, 2012 & Mar 5, 2012.
2012 is a Leap year- should we not consider and count Feb having 29 days instead of 28 in cases where we have a Leap Year..? So that way we would have 21 days of Jan ( Jan 11- Jan 31st) + 29 days of Feb ( 2012 being a Leap Year ..?) + 5 Days of March( Mar 1st To Mar 5 ) = 55 Days instead of 54 Days..?
Much gratitude for any insight on this.

 

[David Harper CFA FRM]

Hi @gargi.adhikari Yes, that appears to be a mistake. The actual number of days during a leap year is 366 such that total days between 1/10/2012 and 7/10/2012 is 182 (Excel gets this correct), and the Days Since (i.e., since 1/10/2012) as of 3/5/2012 should be 54 due to the inclusion of February 29th, not 54 as shown. I think you are correct! I can see this didn't fool Excel, so I must not have used Excel here (I can't remember); I bet I just assumed the typical 181 days then in my head run the calculation of 31+28+(20-5) when I should have calculated 31+29+(10-5) = 55. Sorry for my confusion, thank you for catching this!

 

[gargi.adhikari]

@David Harper CFA FRM Thanks so very much David for the clarification. I did want to make sure, if or not we're supposed to factor that in or just consider Feb as 28 days. Now it's clear as the sky Much gratitude

 

[Nicole Seaman]

I just wanted to note that it doesn't look like this mistake carried over to the updated set of notes that we published on May 2nd

 

[David Harper CFA FRM]

@Nicole Seaman agreed, thank you. And just to clarify (and illustrate @gargi.adhikari 's good point). The updated notes uses the table in the top panel below; specifically, we updated the year to 2015 which is not a leap year. So we didn't repeat the mistake, because we didn't use a leap year. In the bottom panel, when I replace 2015 with 2016 (which is a leap year), then Excel is accurate and reflects the additional day (in both the numerator and denominator) for a slightly higher accrued interest and full price. Thanks!

 

[Nicole Seaman]

@Nicole Seaman agreed, thank you. And just to clarify (and illustrate @gargi.adhikari 's good point). The updated notes uses the table in the top panel below; specifically, we updated the year to 2015 which is not a leap year. So we didn't repeat the mistake, because we didn't use a leap year. In the bottom panel, when I replace 2015 with 2016 (which is a leap year), then Excel is accurate and reflects the additional day (in both the numerator and denominator) for a slightly higher accrued interest and full price. Thanks!

@David Harper CFA FRM Thank you very much for clarifying that! I appreciate you taking the time to explain the difference!

 

[gargi.adhikari]

@Nicole Seaman @David Harper CFA FRM My bad - but point well taken - I should be like Nicole rightly pointed out referring to the latest study materials. Going forward I will refer to the materials from this year. Thanks to you all once again for all you guys do and hope you have a wonderful rest of the weekend