Lesson 17 of 20
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:
