Reading 9: Common Probability Distributions - LOS k, (Part period, return, style

mayanfang1

Q1. If a stock decreases from $90 to $80, the continuously compounded rate of return for the period is:

A)     -0.1250.

B)     -0.1000.

C)     -0.1178.

Q2. Given a holding period return of R, the continuously compounded rate of return is:

A)     ln(1 + R).

B)     e^R − 1.

C)     ln(1 − R) − 1.

Q3. The continuously compounded rate of return that will generate a one-year holding period return of -6.5% is closest to:

A)   -6.3%.

B)   -6.7%.

C)   -5.7%.

mayanfang1

答案和详解如下：

Q1. If a stock decreases from $90 to $80, the continuously compounded rate of return for the period is:

A)     -0.1250.

B)     -0.1000.

C)     -0.1178.

Correct answer is C)

This is given by the natural logarithm of the new price divided by the old price; ln(80 / 90) = -0.1178.

Q2. Given a holding period return of R, the continuously compounded rate of return is:

A)     ln(1 + R).

B)     e^R − 1.

C)     ln(1 − R) − 1.

Correct answer is A)

This is the formula for the continuously compounded rate of return.

Q3. The continuously compounded rate of return that will generate a one-year holding period return of -6.5% is closest to:

A)   -6.3%.

B)   -6.7%.

C)   -5.7%.

Correct answer is B)

Continuously compounded rate of return = ln(1 − 0.065) = -6.72%.

C-Rachel

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jacky_z

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