David Harper CFA FRM
Hi @Elizabeth_Babalola Thank you, I hope you are keeping safe also! Can I clarify: do you mean that, in the denominator of the formula, instead of 1+Rf(T2 - T1), it should read 1+(Rf(T2 - T1))? And/or do you mean, in the equivalent calculation that, instead of (1+ 4.5 × 025), it should read (1+ (4.5 × 025))? If so, it's actually not necessary per order of operations (https://en.wikipedia.org/wiki/Order_of_operations) where multiplication is performed before addition. I do realize the calculator sets either way, but in mathematical expression, we (aka, everybody and commonly) rely on order of operations. Further, I think it's okay to expect the reader to understand that the discounting is with quarterly frequency is what's happening here; i.e., 1 + Rf*0.25 = (1 + Rf/k)^(T*k) in the case of k = 4 when T - 0.25 --> (1 + Rf/4)^(025*4) = (1 + Rf/4)^1 = (1 + Rf * 0.25). We should understand this is not annual compounding/discounting but rather discounting with quarterly compound frequency, if you like. If I misunderstood the correct requested, apologies?