CFA Practice Question

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CFA Practice Question

Compounding continuously results in ______ quoted rate.

A. a lower
B. a higher
C. the same
Correct Answer: A

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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