Time Value of Money (TVM) - continuous compounding (for the @CFA Level 1 exam)

Time Value of Money (TVM) - continuous compounding (for the @CFA Level 1 exam) explores the formula for computing the future value of an investment assuming continuous componding as well as that investment's effective annual rate (EAR). We also discuss an easy approximation if you do not want to commit another formula to memory.

[@dennisb.3485]

Couldn't this also be $20,000(1+EAR)^2 - you would get both your answers at the same time since e 0.10 = 1.10517 - 1 = 0.10517 = 10.517% = EAR - Your CFA videos are the best on KZbin btw. Thank you!

[@letmeexplaincfa]

Yes, you are absolutely right! you can definitely approach it this way. Thank you very much for your kind words!

[@syedjeelani1136]

Appreciated!

[@letmeexplaincfa]

Thank you

[@ghosusmani5084]

Fantastic man, thank you for this amaizing resource. Although not for me as of now cuz i am just concidering CFA. It would be a great help if i could have a conversation (ideally), or if you could make a generic video fr someone in my position. Again amaizing work love that someone is doing what you are in the way that you are

[@letmeexplaincfa]

Thanks a lot! So, you say a video for people considering the CFA would be useful? I'll put that on the list.

[@anandmishra5342]

Excellent ❤

[@letmeexplaincfa]

Thank you!

[@mohammedaldosari199]

perfect quality, we need website for this like Mark Meldrum and I will be the first subscriber

[@letmeexplaincfa]

Thank you🙏 this comment made my day. I am recording videos for all Level 1 learning modules which will be available to channel supporters. This feature should roll outings February👍

[@emalineho2983]

Do you always use continuous compounding when doing a question on FX forward rates? For eg. You have USD1,000 to invest for six months. You are considering a riskless investment in either US or Japanese six-month government debt. Assume that the current exchange rate between Japanese yen (JPY) and US dollars (USD) is 134.40 (i.e., JPY134.40 = USD1). The six-month Japanese yen risk-free rate is assumed to be 0.05 percent, and the six-month US dollar risk-free rate is 2.00 percent.

[@Dub105]

Thank you

[@travisbradfield1311]

Hey, thanks so much for the videos. When calculating EAR, can you do (1+r/m)^m -1

[@letmeexplaincfa]

Yes, althought it will be an approximation (but close)

[@milindbebarta2226]

Is it not needed to convert this annual compounded rate r to continuous compounded rate = ln(1+r)?

[@letmeexplaincfa]

I am not sure which moment in the video you are refering to? In any case, this is the approach you need to follow in th exam.

[@vidya014]

1. The Bank Interest Compounding formula is not suitable to be applied in stock's intrinsic compoundings. 2. If the P/E ratio of the stock is maintained at 6 or at 20 respectively over 10 years, you will have the same multiples amount in year 3, 5 or 10 for respective cases.