Page 67 - FINAL CFA I SLIDES JUNE 2019 DAY 3
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LOS 10.o: Distinguish between discretely and Session Unit 3:
continuously compounded rates of return and
calculate and interpret a continuously 10. Common Probability Distributions
compounded rate of return, given a specific
holding period return, p. 233
Continuous compounded Rates of Returns are additive for multiple periods…so what?
In general, the holding period return after T years, when the annual continuously compounded rate is Rcc, is given by:
Given investment results over a 2-year period, we can calculate the 2-year continuously
compounded return and divide by two to get the annual rate.
Consider an investment that appreciated from $1,000 to $1,221.40 over a 2-year period.
The 2-year continuously compounded rate is ln(1,221.40 / 1,000) = 20%, and the annual
continuously compounded rate (Rcc) is 20% / 2 = 10%.
