This blue box is the second one that comes after the example 8 in Term structure and Interest Rates.
Can anyone explain how and why the powers of the discount rate are in that manner?
for the semi-annual coupon payment of a bond with maturity 2.97 years is discounted by a discount rate raised to (2- (10/140)
it is 2 - 10/180
and they have explained why on the previous page. Evaluation Date is 12 July 2012, matures on 2 Jul 2015 – which is 2 + 350/360.
so now you are evaluating all the periods 10 days before end of each subsequent period.
so 10/180 is the factor you have to subtract from each period.
Thanks a lot for the answer.