The equal rate of price change from each subsequent up state and ﬁxed rate price change from each subsequent down state are reasonable, if:
A)There is a constant variability.
B)Any new information impacting prices is similar period to period.
C)Interest or discount rates are constant.
D)Both A and C.
E)Both A and B.

Question

Quizplus · Accepted Answer

The equal rate of price change from each subsequent up state and fixed rate price change from each subsequent down state are reasonable if any new information impacting prices is similar period to period (B) and there is a constant variability (A). These assumptions imply that there is no trend or seasonality in the data, and that interest or discount rates are not changing (C is not necessary but would be a valid assumption). Therefore, the best choice is E, which includes both assumptions.

The Equal Rate of Price Change from Each Subsequent Up