10.6: Compounding Frequency Assumption
- Page ID
- 88583
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Notice how, as “P” increases, FVs increase, and PVs decrease – both at decreasing rates!
The mathematics for continuous compounding and discounting follow on the next page. You will note that the difference between daily and continuous compounding and discounting is very small. Today, we don’t often – if ever – see instruments that exhibit continuous compounding.