SIE Exam Question 875: Answer and Explanation

Question: 875

If an investment is held for more than one year, the holding period return __________ the true investment return on an annual basis. If an investment is held for less than one year, the holding period return __________ the true investment return.

• A. correctly states, overstates
• B. overstates, correctly states
• C. overstates, understates
• D. understates, overstates

Correct Answer: C

Explanation:

If an investment is held for more than one year, the holding period return overstates the true investment return on an annual basis. If an investment is held for less than one year, the holding period return understates the true investment return.