# Continuous Rates?

What is a “continuous rate”? I’m seeing this term in a valuation report, where a firm has taken Canadian gov’t bond yields as provided by Bloomberg, and is somehow converting them to “continuous rates”. My first guess what that these are continously compounded rates but, if that were the case, I’d expect them to be higher than the quoted yields, but their consistently a little bit lower.

continuously compounded rates ARE lower. If you don’t believe me, do it yourself I excel Lets say you have \$100 now and \$110 in a year. The annually compounded r is 10%; the continuously compounded r is 9.5%

I’m missing something very basic here. Could you help me through an example… Gov’t bond yield per Bloomberg: 3.32% Continous Rate: 3.29% How to you convert from the bond yield to continous, and vice-versa? Thanks

3.29 x e^time frame I think…don’t have the BAII Plus to double check.

This is from memory, so it could be wrong… Maybe someone who just took LII or is in fixed income will correct me The formula for continuos rate is ln(F/P) / (days/365) The formula for Annual rate is (F/P)^(365/days) -1 There is one formula to quickly convert, but I forget it. Do algebra or do it in excel (excel is easy).