Lessons

- What is a Probability Distribution
- Discrete Vs. Continuous Random Variable
- Cumulative Distribution Function
- Discrete Uniform Random Variable
- Bernoulli and Binomial Distribution
- Stock Price Movement Using a Binomial Tree
- Tracking Error and Tracking Risk
- Continuous Uniform Distribution
- Normal Distribution
- Univariate Vs. Multivariate Distribution
- Confidence Intervals for a Normal Distribution
- Standard Normal Distribution
- Calculating Probabilities Using Standard Normal Distribution
- Shortfall Risk
- Safety-first Ratio
- Lognormal Distribution and Stock Prices
- Discretely Compounded Rate of Return
- Continuously Compounded Rate of Return
- Option Pricing Using Monte Carlo Simulation
- Historical Simulation Vs Monte Carlo Simulation

# Discretely Compounded Rate of Return

A discretely compounded rate of return is simply a compounded rate of return with a discrete compounding frequency such as daily, monthly, quarterly, or semi-annually.

As the frequency of compounding increases, the annual effective yield also increases because the interest or income earned is compounded more frequently.

**Example**

Suppose an investment grows at an annual rate of 10% compounded quarterly. At the end of one year, the investment will grow to:

The effective annual yield is given as:

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