Use compatible growth factors
All inputs are fictional. Currency quotes are domestic per foreign unless explicitly inverted. Geometric annualization is a historical rate conversion over the supplied duration, rather than a future performance claim.
Check a second representation
For linking, calculate actual wealth from index 100. For currency, convert local endpoint amounts. For annualization, reconstruct the growth factor over the covered horizon. These checks help locate the specific assumption behind a wrong option.
Try the questions
Two annual returns are +20% and −20% with no flows. What is cumulative return?
- A.
0%
- B.
−4%
- C.
−2.020410%
Answer and explanation
Answer: B
Initial 100 ends at 96; cumulative and annual rates differ.
- A
Simple addition ignores changing wealth bases.
- B
1.2×0.8−1 is −0.04.
- C
This is the equivalent annual geometric rate over two years.
Local total return is 10%; a domestic-per-foreign quote falls by 5%. What is domestic return?
- A.
5%
- B.
4.5%
- C.
15.5%
Answer and explanation
Answer: B
The currency factor acts on the full local ending wealth.
- A
This omits the −0.5-point interaction.
- B
1.10×0.95−1 equals 0.045.
- C
This uses the wrong sign for currency movement.
A one-quarter observation earns 2%. What does 1.02⁴−1 represent?
- A.
Four quarters of observed actual returns
- B.
The geometric annual equivalent under the stated quarter convention
- C.
A guaranteed next-year return
Answer and explanation
Answer: B
The conversion is 8.243216%, with no invented later observations.
- A
Only one quarter was supplied.
- B
The exponent converts the historical horizon.
- C
No prediction or guarantee follows.