To Annualize a Two-Year Holding-Period-Return, You Need to Assume That

question 45

Multiple Choice

To annualize a two-year holding-period-return, you need to assume that:

• A) All cash receipts in the first year are ignored in the calculation
• B) All cash receipts in the first year are reinvested
• C) The arithmetic average will be smaller than the geometric average
• D) There are no outliners in the returns
• E) Nothing

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Definitions:

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, usually expressed in years.

Perpetuity

A financial term for a constant stream of identical cash flows with no end.

Yield

The earnings from an investment, like dividends or interest, shown as a percentage of the investment's original cost or its current market valuation.

Perpetuity

A type of financial instrument that provides an infinite stream of interest payments.