Why Act/360 produces a larger charge than a 365-day year

Act/360 counts the days that actually elapse and divides the annual rate by 360. A 365-day year has five extra days of charge at a slightly fatter daily rate. The two effects run in the same direction. The quoted 6.97 percent is therefore not the rate a 365-day year would use to produce the same money.

Hold March at a single rate so the comparison is clean. $1,847,220 × 0.0697 × 31 ÷ 360 = $11,086.91. The same three inputs with 365 in the divisor: $1,847,220 × 0.0697 × 31 ÷ 365 = $10,935.04. Act/360 is larger by $151.87, which is $11,086.91 − $10,935.04, once each product is taken to the cent. The ratio of the two unrounded products is exactly 365/360, a relative 1.3889 percent.

That signature is useful when a reconstruction misses. A figure about 1.4 percent low, with the balance, rate and days otherwise right, is the 365-divisor being used on a 360 facility. A gap of some other size is a different input. Track 5 lesson 15 treated the same signature on a smaller invented balance; here it is the Halden & Wren opening figure, so the dollars are the ones on the sample page.

The convention is a money-market standard, not a hidden surcharge in the pejorative sense. It is still a fourth input, and comparing two quoted rates on different divisors compares two different products.