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From: Robert Dewar <robert_dewar@my-deja.com>
Subject: Re: financial computations
Date: 2000/05/10
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In article <3918be1c.0@news.pacifier.com>,
  "DuckE" <nospam_steved@pacifier.com> wrote:

> I'm speaking out of my field, but I vaguely remember learning
something
> about this in college (more than 15 years ago).  As I recall
obtaining the
> "correct" answer in financial calculations has as much (or
more) to do with
> convention, than with precise mathematical results.


Right, obviously you cannot compute the interest on a 7.5%
bond completely accurately, and there are all sorts of
complications (for example, sometimes bonds have an annual
yield, meaning that they are a worse buy in leap years, but
more often the nominal yearly yield is converted to a daily
yield).

The instrument will typically specify *EXACTLY* how the
interest is to be computed, down to whether rounded or
truncated computations should be used. The result of these
calculations *IS* the actual interest on the bond (precisely,
it is not an approximation, since the yield is defined by
the definition of these calculations -- the nominal 7.5% is
just that, nominal). So your vague memory here is exactly
right.


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