An individual invested £106.40 in the stock market and the value of his investment two years later is £138.22. What are the simple and continuously compounded returns on his investment?
A) 26% and 30%, respectively
B) -29% and -34%, respectively
C) 30% and 26%, respectively
D) 30% and 30%, respectively

Question

Quizplus · Accepted Answer

The simple return is calculated as (138.22 - 106.40) / 106.40 = 0.30 or 30%. The continuously compounded return is calculated using the formula ln(138.22 / 106.40) = 0.26 or 26%.

An Individual Invested £106