Hi David,
What is meant by Simple compound rate ?

How did you derive this following formula ?
Simple compound rate = (Market rate) * 180 / 181

Regards,
Sathya

Hi Sathya,

I’m sorry, to where are you referring, is this formula?

Generally, these compounding conventions come from Tuckman Chapter 4.
I hope i didn’t say/write “simple compound rate,” it contradicts itself.

simple is without compounding: $12 on $100 = 12% simple interest

On the second, where is the example to which you refer, I can’t find it

David

Hi David,
I am referring to page 45 in marketb_part1.pdf.

Regards,
Sathya

Hi Sathya,

I got that from Tuckman 4.11 - the AIM refers to Tuckman 4.11
(but it’s 181/360, right?)

I think the phrase there “simple compound rate” is an error. Technically, i think it’s an error b/c it’s an oxymoron. Simple implies no compounding. Apologies.

Should just be “simple rate”
where simple rate = [1/2 of his semi annual rate or his r] * 360/181

the reason for this conversion is day count convention: actual/360

but if you’ll forgive my semantic error (delete ‘compound’), then the top of 45 is simply
(if we nix the use of simple and, worse, market)

converting one semi-annual or bond-equivalent return…
(notice the precision of these terms)
...into another semi-annual or bond-equivalent return
and only *merely* translating for day count convention;

e.g., as Tuckman’s 4.11

5% semi annual return * 360/362 = 4.9724% semiannual return

David