Holding period return vs. continuous compouding

CFA Level I
#1

Is the holding period return the same thing as the return for a period with continuous compounding?

#2

That’s a tough question to answer as posed.

Suppose that your purchase price is $10, your selling price is $11, and you receive a $0.50 dividend the day you sell. Your holding period return is 15% (= ($11 − $10 + $0.50) / $10), which is equivalent to a continuously compounded return of 13.9762%. So in that sense, the answer is yes.

However, if your question meant is the holding period return (15%) equal to a continuously compounded return of 15%, then the answer is no.

#3

Is there a formula to convert HPY to continuous compounding returns?

I am confused by what you explained above…

#4

First you would convert from HPY to effective annual yield (EAY):

EAY = (1 + HPY)^(365/t) − 1

where t is the number of days in the holding period.

Then you convert from EAY to continuous compounding:

_r_cont = ln(1 + EAY)

#5

Is effective annual yield just the holding period yield on a annual basis?

#6

Yes.