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Proof that \((1-d)=(1-\frac{d^ {(p)}}{p})^{1/p} \)

+1 vote
asked Nov 11, 2017 in BUS 2016H - Financial Mathematics by anonymous

I seem to only be able to prove this when I sum from t=0 to t=p. However, when looking at the timeline given d(p)/p, it seems that one should sum from t=0 to t=p-1, which does not seem to lead to the right final answer.

1 Answer

0 votes
answered Nov 12, 2017 by Richard van Gysen (3,180 points)
Best answer

I don't quite see where you are summing to and from with t, maybe change your question. However, that result should hold intuitively if we divide up the interest rate into smaller basic time units. Otherwise an arbitrage opportunity exists!