Questions / Quant trading, Numerical judgment
Use a first-order approximation
For a small price move, simple return is approximately the price change divided by initial price. A price of 80 rises by 0.12. What is the simple return in basis points?
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Answer: 15 bps
- 0.12 / 80 = 0.0015. Multiplying by 10,000 gives 15 basis points.
Interview shortcut. Δp/p × 10,000 = 0.12/80 × 10,000.
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