Daycount Conventions
Daycount conventions are used to determine the number of days between two coupon dates in order to determine the fraction of a year the period represents. This is important as it affects the amount of accrued interest on a bond and the present value of future coupons. One convention is based on the assumption that there are 30 days each month and 360 days each year; another uses the actual number of days between dates and a divisor of 360; yet another uses the actual number of days and a divisor of 365.