Explanation

To find the continuously compounded rate of return that generates a one-year holding period return (HPR) of -6.5%, we use the formula for continuously compounded returns:

$r_{cc} = \ln(1 + HPR)$

Where:

• $r_{cc}$ = continuously compounded rate of return
• HPR = holding period return = -6.5% = -0.065

Substituting the values: $r_{cc} = \ln(1 + (-0.065)) = \ln(1 - 0.065) = \ln(0.935)$

Calculating $\ln(0.935)$: $\ln(0.935) \approx -0.0672$

Converting to percentage: $-0.0672 \times 100 = -6.72\%$

Among the given options:

• A) -5.7% is too high
• B) -6.3% is close but not exact
• C) -6.7% is the closest to -6.72%

Therefore, the continuously compounded rate of return is closest to -6.7%.