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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

The “Treasury Bill Auction Results” section is based on my article “Bias at the Short End of the Yield Curve,” published in Global Investor (April 1991). I first saw the official Investment Rate for T-bills having more than six months to maturity (equation 1.12) and its derivation in Money Market Calculations: Yields, Break-Evens, and Arbitrage, by Marcia Stigum and John Mann (Dow-Jones Irwin, 1981).

The hourly interest rates example originated as a midterm question in my MBA course in the fall semester of 2003. The point about first converting a money market rate to a 365-day basis before the periodicity conversion to a semiannual bond basis is based on a short article Scott Lummer and I wrote titled “Accurate ...

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