If the standard deviation of the continuously compounded returns on the asset is 30 percent and the interval is a year, then the downside change is equal to
A)−26 percent.
B)−54 percent.
C)−33 percent.
D)−39 percent.

Question

Quizplus · Accepted Answer

The downside change is equal to the standard deviation multiplied by the square root of the interval. In this case, the standard deviation is 30 percent and the interval is a year, so the downside change is equal to 30 percent * sqrt(1) = 30 percent. The closest answer choice is A) -26 percent, which is the negative of 30 percent.

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