CFAI equity book P103 “Annualizing holding period returns, when the holding period is a fraction of a year, is unrealistic when the reinvestment rate is not an actual, available reinvestment rate.” Can anyone give an example? Thanks in advance!
The text gives an example in the lines above that statement, so read from there. basically , if a 1 day return is 8% , which is possible , it DOES NOT mean that the annual return on the stock is 1732 % . compounding a very short term return gives wierd results But u could annualize a CD rate , because CD rates are kind of fixed , do not vary so much.
Thank you! Not sure how I skipped the example but it just didn’t register in my brain…now i got it and the question looks stupid.