Why is the continuously compounded return less than the HPY?
Well the continuously compounded rate of return is expressed as an annual return, while the HPY depends on the holding period. So if you compare a continuously compounded return to an HPY when the holding period is more than one year, there is a good chance that the HPY will be greater. Could someone please confirm this. It’s not my strongest area.
the more you compound, the more your interest earns interest so the required return is less. the continuously compound rate of return is always less for the same holding period.
Yep. It’s like this. Your Annual Return> Returns calculates Semi annually >Returns calculated monthly>Returns calculated daily. The more you compound, the lesser the value of the interest rate gets.
Rate is lower but yield is higher.
I don’t understand these responses. Perhaps you could clarify by providing some numbers?
do you guys mean: The more you compound, the higher your yield is (as interest earns interest) and Annual rate is greater than semi annual because semi annual is for a shorter period? e.g. annual/2 ?