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Read the time convention
A hypothetical annual effective rate is 8%, while the option model period is one quarter of a year under the chosen convention. The compatible factor is 1.08^(1/4), not 1.08.
Calculate the period factor
The quarterly factor is approximately 1.019426547 and its period rate 1.942655%. Enter that period percentage in a tool that accepts one-period rates. An annual nominal quote would need its own compounding convention.
Trace the wrong factor
Using 8% as the period rate grows current price by a full annual amount during the quarter and changes both the state weight and discount denominator. A plausible output does not repair that input timing mismatch.
| Record | Meaning |
|---|---|
| 8% annual effective | One-year quotation |
| 1.08^(1/4) | Selected quarter factor |
| 1.942655% | Rate for that modeled quarter |
Retain the supplied duration
This is a conversion for a stated equal-quarter convention. Actual dates or another day-count method can require a different factor. The number of tree branches does not define the elapsed horizon.