Skip to content

FRM Part I · FRM Exam Part I · Measuring Return, Volatility, and Correlation

A portfolio manager records daily log returns for five consecutive days of 1.20%, -0.50%, 0.80%, -1.10% and 0.40%. The initial value is EUR 2,000,000. What is the approximate ending value after the five days?

Log returns are additive across time, so the five-day total is 0.80%. Multiplying EUR 2,000,000 by e^0.008 gives about EUR 2,016,000, so the closest answer is EUR 2,015,000. Averaging or ignoring the sum would give the wrong value.

  1. AEUR 2,015,000Correct
  2. BEUR 2,000,000
  3. CEUR 2,030,200
  4. DEUR 2,010,000

Explanation

Log returns add: 1.20 - 0.50 + 0.80 - 1.10 + 0.40 = 0.80%. Ending value = 2,000,000 x e^0.008 = 2,016,064, which is closest to 2,015,000 among the options. EUR 2,010,000 would need about a 0.5% return, and the others are not consistent with the 0.8% total.

Did you get it right without looking?

One question tells you little. A timed set on Measuring Return, Volatility, and Correlation shows your real accuracy, how long you take and where you lose marks.

Practise Measuring Return, Volatility, and CorrelationFree diagnostic mock

More Measuring Return, Volatility, and Correlation questions