CFA Level I · CFA Level I Exam · Types of Financial Returns
An analyst's share price rises from 80.00 to 92.00 over one year. The continuously compounded return for the year is closest to:
The continuously compounded return is the natural log of the price relative, ln(92/80) = ln(1.15), which is about 13.98%. The 15.00% figure is the simple return and is larger than the log return for any positive gain.
- A13.98%Correct
- B15.00%
- C16.25%
Explanation
The continuously compounded return is ln(92/80) = ln(1.15) = 0.13976, or 13.98%. The 15.00% option is the simple holding period return, which ignores the logarithm. The 16.25% option is not a meaningful return measure here.
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