Doubts

Exercise 2 from Lecture 2 (in class)

Re: Exercise 2 from Lecture 2 (in class)

by Julio Crego -
Number of replies: 0
Yes, always.

Good question. There is a difference between compounding frequency and the payment frequency. Intuitively, compounding frequency reflects how often you reinvest the proceeds of an alternative investment. Yet, when we receive a payment in 3 months, we like it better than receiving it in 5 months (even if we compound semi-annually). Therefore, discounting always happens considering the time to get the payment.