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# Compound option

Option on an option.

Compound option

# Realized compound yield

Realized compound yield

Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and held thus until the bond matures.

# Compound Annual Growth Rate

Compound Annual Growth Rate

Best defined by example. If you invest \$100 today and make 5% in the first year and reinvest (\$105) and make 8% in the second year, the compound annual growth rate is 6.489%. The calculation is \$100x1.05x1.08=\$113.4 which is what you end up with at the end of year two. The average return is [square root(113.4/100) -1]= 0.06489 or 6.489%. Note 1. If we had three compounding periods we would take the cubic root (power of 1/3). Note 2. If we had invested at exactly 6.489 in both periods, we get \$100x1.06489x1.06489=\$113.4. Note 3. The example is directed to a return - but CAGR could be applied to earnings growth, GDP growth, etc.

# Compounding frequency

Compounding frequency

The number of compounding periods in a year. For example, quarterly compounding has a compounding frequency of 4.

# Compound interest

Compound interest

The process by which interest earned on an investment is added back to the amount invested, so increasing the amount of 'principal' on which further interest will be earned in future years.Compounding is sometimes described as the miracle of investing. The fact is that if you reinvest income in your portfolio, you will end up with a much larger amount than if you spend the income as you go along because of the effect of compounding. But to allow compounding to work its magic, you have to start young.Albert Einstein, when asked what he considered to be mankind's greatest invention, replied 'Compound interest!'

# Continuous compounding

Continuous compounding

The process of accumulating the time value of money forward in time on a continuous, or instantaneous, basis. Interest is earned constantly, and at each instant, the interest that accrues immediately begins earning interest on itself.

# Further Suggestions

Compound interest
compound annual growth rate
Compound interest
Compounding
Compounding period
Simple compound growth method
Discrete compounding
compound reversionary bonus
Compound growth rate
Compound Annual Return
Compound tariff