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Basic Question 5 of 7
Compounding continuously results in ______ quoted rate.
B. a higher
C. the same
A. a lower
B. a higher
C. the same
User Contributed Comments 4
| User | Comment |
|---|---|
| ibrahim18 | why? |
| mtsimone | CCng results in a higher Rf rate, so discounting a future value will result in a lower PV. A Rf of 4.5% continuously compounded = 4.603%. Discounting $100 for a year at 4.5% = $95.7, but at 4.603% = $95.57. |
| mtsimone | You use CCng when you have a yield, e.g., you own a dividend paying index with 2000 equities. The dividends are coming almost daily, so you want to CC the stated rate. If it's a single equity that pays a dividend during a time period, then use a compounded stated rate. |
| Patdotcom | But it is asking for quoted rate not for PV, isnt it? Shouldnt it be higher? |
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Learning Outcome Statements
explain how the value and price of a forward contract are determined at initiation, during the life of the contract, and at expiration
CFA® 2024 Level I Curriculum, Volume 5, Module 5.