The interest payment of a swap is determined based on compounding according to a specific day count convention (such as 30/360, ACT/ACT, ACT/360, etc). The day count convention used in the U.S. government bond market is ACT/ ACT, while 30/360 is used in the corporate bond market. Both fixed payment and floating payment are calculated using a respective day count convention:

Fixed payment= N x (fixed rate) x (fixed rate day count convention)

Floating payment= N x (floating rate) x (floating rate day count convention)

where N is the notional principal amount of the swap.

For example, the day count convention used for interest rate swaps and credit default swaps is ACT/360. This day count convention means that to determine the payment in a quarter, the actual number of days in the quarter are used and the year is assumed to consist of 360 days. Therefore, the swap payment for a quarter is given by:

Quarterly payment = N x (actual rate in decimal) x (actual number of days in quarter/ 360)