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All calculations for this conversion factor are to a quarter. Note that all calculations for 2-year and 5-year notes are rounded down to the next whole month, so all calculations for these conversion factors are to a whole month. These all differ from the standard bond price calculation, which is to an exact day, as shown in Chapter 6, Equation 6.1.

The conversion factor applies to a unit amount (1). The conversion factor is therefore multiplied by the actual par amount of the trade and by the futures contract price, to determine the actual cash for the principal amount of the bonds delivered. Accrued interest is added as well, as usual for bond trades.

The last term inside the outer square brackets ^ + ^ q^2n j is the present value of the final maturity amount. It shows the future value (1) discounted at 3% for 2N semiannual periods. If the original calculation for X gave X = 6 or X = 9, then X was reduced by 6 and 2N increased to 2N + 1.

The middle term inside the outer square brackets is the present value of the annuity of coupon payments, as displayed in Equation 5.6 in Chapter 5 and as shown in the following development:

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