CAIA chapter 3 questions with correct answers

Define continuous compounding - Answer Continuous compouding assumes that earnings can be instantaneously reinvested to generate additional earnings Define discrete compounding - Answer Discrete compounding inludes any compounding interval other than continuous compounding such as daily, monthly or annual What is a log return? - Answer Log return is a continuously compounded return that can be formed by taking the natural logarithm of a wealth ration What is a return computation interval? - Answer Return computation interval for a particular analysis is the smallest time interval for which returns are calculated, such as daily, monthly, or even anually. What are the 2 common tasks in return analysis? - Answer 1) Aggregating a number of returns from smaller sub-periods into one larger time period 2) Determining an average return What is the primary challange that causes difficulty in calculating the return performance of a forward contract or another position that requires