Suppose returns on a stock are lognormally distributed with expected (annualized)mean of of 0.10 and standard deviation of 0.20.What is the expected simple return on the stock for one month?
A)0.83
B)1.01
C)1.08
D)1.13

Question

Quizplus · Accepted Answer

The expected simple return can be calculated using the formula for converting lognormal returns to simple returns: E(R) = exp(μ + 0.5σ²) - 1. For one month, μ = 0.10/12 and σ = 0.20/√12. Plug these into the formula to find the expected simple return.

Suppose Returns on a Stock Are Lognormally Distributed with Expected