# Question

Suppose you observe the following month-end stock prices for stocks A and B:

For each stock:

a. Compute the mean monthly continuously compounded return. What is the annual return?

b. Compute the mean monthly standard deviation. What is the annual standard deviation?

c. Evaluate the statement: “The estimate of the mean depends only on the beginning and ending stock prices; the estimate of the standard deviation depends on all prices.”

For the following five problems, unless otherwise stated, assume that S0 = $100, α = 0.08, σ = 0.30, and δ = 0.

For each stock:

a. Compute the mean monthly continuously compounded return. What is the annual return?

b. Compute the mean monthly standard deviation. What is the annual standard deviation?

c. Evaluate the statement: “The estimate of the mean depends only on the beginning and ending stock prices; the estimate of the standard deviation depends on all prices.”

For the following five problems, unless otherwise stated, assume that S0 = $100, α = 0.08, σ = 0.30, and δ = 0.

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