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Basic Question 7 of 10
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? |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe the carry forward model without underlying cashflows and with underlying cashflows;
CFA® 2025 Level II Curriculum, Volume 5, Module 31.