For lognormally distributed returns,the annual compound returns equal:
A)the arithmetic average return minus half the variance.
B)the arithmetic average return plus half the variance.
C)the arithmetic average return minus half the standard deviation.
D)the arithmetic average return plus half the standard deviation.

Question

Quizplus · Accepted Answer

For lognormally distributed returns, the annual compound return is approximately equal to the arithmetic average return minus half the variance of the returns. This is due to the adjustment needed for the lognormal distribution's skewness.

For Lognormally Distributed Returns,the Annual Compound Returns Equal