INVESTMENT INCOME

Actual/360
Actual/360 is the second type of day count convention. Specifically,
Actual/360 specifies that each month has the same number of days as
indicated by the calendar. However, each year is assumed to have 360
days regardless of the actual number of days in a year. Actual/360 is the
day count convention used in U.S. money markets. Let’s illustrate the
Actual/360 day count with a 26-week U.S. Treasury bill which matures
on March 7, 2002. The Bloomberg Security Display (DES) screen for this
security is presented in Exhibit 2.3. From the “Security Information” box
on the left-hand side of the screen, we see that the day count is specified
as “ACT/360.” Suppose this Treasury bill is purchased with a settlement
date on September 11, 2001 at a price of 98.466. How many days does
this bill have until maturity using the Actual/360 day count convention?
Once again, the question is easily answered using Bloomberg’s DCX
(Days Between Dates) function and specifying the two dates of interest.
This screen is presented in Exhibit 2.4. We see that with a settlement date
of September 11, 2001 there are 177 calendar days until maturity on
March 7, 2002. This can be confirmed by examining the Bloomberg’s YA
(Yield Analysis) screen in Exhibit 2.5. We see that with a settlement date of
September 11, 2001 this Treasury bill has 177 days to maturity. This information
is located just above the “Price” box in the center of the screen.

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