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"Act/Act Bond" - Daily Compound Interest
How to apply the "Act/Act Bond", or "Actual/Actual Bond" Day Count Convention to Daily Compound Interest?
✍: FYIcenter.com
Daily Compound Interest do not normally using the Act/Act Bond
convention. But if it happens, the Day Count Factor formula is still
valid for the Daily Interest calculation:
T1 = (Y1,M1,D1) T2 = (Y2,M2,D2) = T1 + 1 day T3 = (Y3,M3,D3) = T1 + 1 day DiR(T1,T2) = Calendar_Days(T1,T2) = 1 DiY(T1,T2) = Accrual_Frequency × Calendar_Days(T1,T2) = Accrual_Frequency × 1 = Accrual_Frequency Day_Count_Factor(T1,T2) = DiR(T1,T2) / DiY(T1,T2) = 1 / Accrual_Frequency Accrued_Interest(T1,T2) = Principal × Interest_Rate × Day_Count_Factor(T1,T2) = Principal × Interest_Rate × Accrual_Frequency
But the Accrual Frequency is no longer a constant. It varies between 365 and 366 because of leap days. The Act/Act Bond does not specify any rules to determine the Accrual Frequency. But we can think of 2 options:
1. Count calendar days in anniversary years - Using the first day of your investment as the starting point, count days in Accrual Years that end on the anniversary dates.
[T1,T2) = R1+R2+... R1 = [T1,T1+1 year) R2 = [T1,T1+2 years) ... Accrual_Frequency(R1) = Calendar_Days(R1) Accrual_Frequency(R2) = Calendar_Days(R2) ...
2. Count calendar days in calendar years - Splitting the Accrual Range into smaller parts by the calendar year boundaries, count days in the calendar years.
[T1,T2) = R1+R2+... R1 = Intersection of [T1,T2) in year 1 R2 = Intersection of [T1,T2) in year 2 ... Accrual_Frequency(R1) = Calendar_Days(Year 1) Accrual_Frequency(R2) = Calendar_Days(Year 2) ...
Since there is no rules specified for DiY(T1,T2), Act/Act Bond convention is not applicable for daily Compound Interest.
⇒ "Act/Act Bond" - Monthly Compound Interest
⇐ "Act/Act Bond" - Cross-Period Accrual
2026-02-04, ∼421🔥, 0💬
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