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#42 Which of the following statements is true? a. A continuous compounded rate of return is...

#42 Which of the following statements is true?

a. A continuous compounded rate of return is higher than any discretely compounded rate of return.

b. A continuous compounded rate of return is lower than any discretely compounded rate of return.

c. A continuous compounded rate of return is the same as that of the discretely compounded rate of return.

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Answer #1

ANSWER

CORRECT OPTION WHICH IS TRUE OPTION (a) "A continuous compounded rate of return is higher than any discretely compounded rate of return"

EXPLANATION

  • Discretely Compounding means compounding at some fixed intervals ( be it Annual, Semi annual, Quaterly, Monthly etc). In other words, the Compounding period is defined .
  • Whereas Continuous Compounding means compounding of Interest at lowest intervals as possible.
  • Hence the "Continuous Compounding" generates more Interest as the frequency of compounding is higher in such case. Therefore Rate of Return is higher in this case as compared to Discretely Compounding
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