A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the price of the stock given a one standard deviation move up after 3 years?
A) $64.41
B) $74.41
C) $84.41
D) $94.41

Question

Quizplus · Accepted Answer

The stock price after a one standard deviation move up can be calculated using the formula for the future price of a lognormally distributed stock: $ S_t = S_0 \times e^{(\mu + \sigma) \times t} $. Here, $ S_0 = 55 $, $ \mu = 0.12 $, $ \sigma = 0.22 $, and $ t = 3 $. Plugging in these values gives $ S_t = 55 \times e^{(0.12 + 0.22) \times 3} \approx 84.41 $.

A Stock Is Valued at $55