Reading 28 - example 11. (Interst rate options)

[sachin_patel]

When calculating future value of premium in this EOC, it uses notation rate * days/360
when finding out future value of loan, its using rate^(365/days) notation.
Why one is just multiplied, while one is raised to the power?
Thanks,

 

[S2000magician]

The former is a nominal rate (LIBOR).
The latter is an effective rate.

 

[sachin_patel]

got it.. we are supposed to find effective rate in the example.