Three-Month Eurodollar Futures

[Anonymous]

PRM HANDBOOK SECTION I.B.3.6.2

A Eurodollar deposit (in the cash market) is a three-month (dollar) time deposit in a foreign bank
or an overseas branch of a US bank (see Chapter I.C.2). The day count convention is actual/360
and it is quoted on a yield (or ‘add-on’) basis. Hence, if the quoted yield on a 90-Eurodollar
deposit is y = 12% p.a., a deposit of $100m will accrue to $103m [= $100(1 + 0.12(90/360))]
after 90 days. (This implies an annual compound rate of 12.74% [= ($103/$100)^365/90 – 1 =0.1274].)

QUESTION. IN CALCULATING THE ANNUAL COMPOUND RATE, WHY ARE WE RAISING 103/100 TO THE POWER OF 365/90 WHEN THE DAY COUNT CONVENTION IS ACTUAL/360? IS THIS AN ERROR IN THE HANDBOOK?

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