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BOND MATH: The Theory Behind the Formulas by Donald J. Smith

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Chapter 1: Money Market Interest Rates

Equation 1.8, which allows the conversion of a discount rate to an add-on rate when both are quoted for the same day-count convention, is derived by assuming that the cash flows, PV and FV, are the same for each rate quotation. To derive the equation, first rewrite equations 1.3 and 1.6.

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Equate these two expressions.

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Subtract 1 from each side.

Simplify the numerator on the right side.

Multiply each side of ...

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