Financial Risk Manager Part 1

The continuously compounded return is calculated using the formula:

$r_t = \ln P_t - \ln P_{t-1}$

For time 4: $r_4 = \ln P_4 - \ln P_3 = \ln 103.56 - \ln 103.68$

Calculating the values:

• \ln 103.56 ≈ 4.640
• \ln 103.68 ≈ 4.641

Therefore: $r_4 = 4.640 - 4.641 = -0.0012$

The correct answer is D (-0.0012), which represents the continuously compounded return from time 3 to time 4._