Financial Risk Manager Part 1

Explanation

The simple return formula is:

$R_t = \frac{P_t - P_{t-1}}{P_{t-1}}$

Given:

• Simple return for 5th period (R₅) = 1.75% = 0.0175
• Price at time 4 (P₄) = 99
• Price at time 5 (P₅) = p

Substituting into the formula:

$`$0.01`75 = \frac{p - 99}{99}$$

Solving for p:

$p - 99 = 0.0175 \times 99$

$p - 99 = 1.7325$

$p = 1.7325 + 99 = 100.7325$

Rounding to two decimal places, p ≈ 100.73

Therefore, the correct answer is C. 100.73