While stock returns are commonly modeled as lognormal, bond returns are less ideally modeled as lognormal because
A) Bond return volatility may not always be increasing in maturity.
B) Bond yields may be negative when bond returns are lognormal.
C) Both (a) and (b).
D) Neither (a) nor (b).

Question

Quizplus · Accepted Answer

Bond returns are less ideally modeled as lognormal because both bond return volatility may not always be increasing in maturity, and bond yields can be negative, which is not well-represented by a lognormal distribution that only takes positive values.

While Stock Returns Are Commonly Modeled as Lognormal, Bond Returns