Which of the Following Statements Is True

question 20

Multiple Choice

Which of the following statements is true?

• A)A random walk process is stationary.
• B)The variance of a random walk process increases as a linear function of time.
• C)Adding a drift term to a random walk process makes it stationary.
• D)The variance of a random walk process with a drift decreases as an exponential function of time.

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Definitions:

Pure Discount Loan

A loan where the borrower receives a sum of money upfront and repays a higher amount at the end of the loan period, effectively paying interest by the difference.

Lump Sum Payment

An isolated financial disbursement occurring once, instead of being divided into multiple payments over a duration.

Annual Interest Payments

Periodic payments made to bondholders, typically annually, that represent the interest earned on the investment.

Effective Annual Rate

The real return on an investment, taking into account the effect of compounding interest over a year.