CFAI Mock Question 46 (Afternoon) 400, index, compound, continue, interest

jcole21

when calculating the SP 400 Mid Cap stock index, the answer use the discrete interest rate. Why not the standard formular for index, ie. compound continue rate?
any comment is appreciated!!

Iginla2011

Because it is an index of stocks and not a specific equity security. The real way to calculate dividends on an equity INDEX is to assume that they are continuous.
Remember the difference between an index and a specific security.
Let’s say that index has 400 stocks that each pay a dividend at different times. How would you discount the present value of those dividends? The only way is to use a continuous dividend yield that will be given to you.

jcfa2011

Oops misread the question. Sorry my brain is overheating!

ishfaque

thank you but that was my confusing.

MiniMe7

thanks a lot!