Uranus08

tikkigod Wrote:
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> green360 Wrote:
> --------------------------------------------------
> -----
> > ok, but why? am trying to understand the logic
> > behind it.
>
>
> you are discounting the 90 day unannualized rate
> by the 30 day unannualized rate to get the present
> value.


No. Discounting 120 by 30 to get 90. The goal is to find the 90 day rate. You want to find a 90 day rate such that investing for 30 and rolling over at 90 is the same thing as investing for 12. If this doesnt hold you have arbitrage whch is no good. So to get the 90 day rate you have to discount the 120 day rate by 30 days.