rates
I think the answer is that a rate quoted will usually be an annual rate, and it will usually compoun acording to the period of the interest payment. If you have a 30 year semi annual paying bond, and the GRY is 3%, then thats 1.5% per half year. If (as in this case) you have a LIBOR rate for 6 months, then it will be an annual rate which applies to the period of the investment. If there are 183 days in the half year you will get 3% (183/360) at the end of the period. (But always watch the wording of the qustion.) So (1+ 3%(183/360) ) is the right interest rate. Your method assumes that 3% is an annual effective rate and you have taken the (183/360)th root of it. Not a common approach unless it says the 3% is an annual effective rate. The 360 day convention for money maket rates is just a convention, but I seem to recall that it indicated 360 day year in the question.
Last edited: Apr 16, 2013