question 1:

A bank quotes an interest rate of 8% pa with quarterly compounding. Note that another way of stating this rate is that it is an annual percentage rate (APR) compounding every quarter. Which of the following statements about this rate is NOT correct? All percentages are given to 5 decimal places.

a.

Effective quarterly rate is 2.00000% per quarter.

b.

Effective monthly rate is 0.66227% per month.

c.

Continuously compounded semi-annual rate is 3.85306% per semi-annual.

d.

Continuously compounded quarterly rate is 1.98026% per quarter.

e.

The annual percentage rate (APR) compounding every month is 7.94725%.

Question 2:

The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue. Let P1 be the unknown price of a stock in one year. P1 is a random variable. Let P0=1, so the share price now is $1. This one dollar is a constant, it is not a variable.

Which of the below statements is NOT correct?

a.

Red is log-normally distributed, and the mean is higher than the median.

b.

Green is normally distributed with the same mean and median.

c.

Red is a stock's net discrete return (NDR), with a minimum value of negative one.

d.

Blue is a stock's future price (P1), with a minimum value of zero.

e.

Blue is a stock's log gross discrete return (LGDR), with a minimum value of zero.