Continuous Compound (Based on stock value increase)

Question 1

Multiple Choice

If the price of a bond increases from $980 to $1,050 in one year, the continuously compounded rate of return is closest to:

6.99%

7.14%

6.80%

Explanation

A is correct. The continuously compounded rate of return is calculated using the formula:
r = In(S_{T}\div S_{0})
S_{T} = The price of the stock after one year. 
S_{0} = The price of the stock at time 0. 
How to solve using the BAII plus 
1,050 / 980 = 1.07142857
Press LN 
The result should be 0.06899287 or 6.99%

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Question 1

If the price of a bond increases from $980 to $1,050 in one year, the continuously compounded rate of return is closest to:

Explanation

Tags

Continuous Compound (Based on stock value increase)

Question 1

If the price of a bond increases from $980 to $1,050 in one year, the continuously compounded rate of return is closest to:

Explanation

Tags

Full Answer

Rendered Formula: