If the standard deviation of the continuously compounded returns on the asset is 20 percent and the interval is one half of a year, then the downside change is equal to
A)−37.9 percent.
B)−19.3 percent.
C)−20.1 percent.
D)−13.2 percent.

Question

Quizplus · Accepted Answer

The downside change can be calculated using the formula: downside change = -σ√t, where σ is the standard deviation and t is the time interval. Here, σ = 0.20 and t = 0.5, so the downside change = -0.20√0.5 = -0.1414 or approximately -13.2 percent.

If the Standard Deviation of the Continuously Compounded Returns on the Asset