US Continously compounded six month annualized risk free rate is it the same thing as continuously compounded risk free rate? if not, how to convert? Thanks!
They would be very close but slightly off. First is (e^(Rf*0.5))^2 The second is e^(Rf)
sorry but based on your calculation, they are the same… AFJunkie Wrote: ------------------------------------------------------- > They would be very close but slightly off. > > First is (e^(Rf*0.5))^2 > > The second is e^(Rf)
I know on a calculator they will show the same but if you put your decimle out far enough there will be a difference. One is annualized and one is continuous. Mathmatically i dont see how they could both be equal. For the CFA i’m sure its okay. Sorry, getting bogged down in details! D@mn u CFA!
x^a*x^b=x^(a+b) --> 2^3*2^2=8*4=32=2^5 Similarly, (e^ax)^2 = e^ax*e^ax = e^(2ax) Thus, the 6 month continuously compounded annualized rate = the continuously compounded annualized rate.