CAIA Level 1 - Chapter 3: Quantitative Foundations questions with correct answers

Compounding - Answer - is the recognition of interest on interest or, more generally, earnings on earnings Simple Interest - Answer - a quick and easy method of calculating the interest charge on a loan and does not incorporate compounding Continuous Compounding - Answer - mathematical limit that compound interest can reach if it's calculated and reinvested into an account's balance over a theoretically infinite number of periods. Discrete Compounding - Answer - the method by which interest is calculated and added to the principal at certain set points in time such as daily, monthly, or annual Log Return - Answer - is a continuously compounded return that can be formed by taking the natural logarithm of a wealth ratio Return Computation Interval - Answer - for a particular analysis is the smallest time interval for which returns are calculated, such as daily, monthly, or even annually Return on notional principal - Answer - divides economic gain or loss by the notional principal of the contract