If the continuously compounded return on a stock worth $1 currently for a preset interval of time is distributed normally as follows r N(, 2 ) N(0 1, 0 2 2 ), then what are (a) The expected price of the stock after one interval (b) The variance of the stock price

Question: If the continuously compounded return on a stock worth $1 currently for a preset interval of time is distributed normally as follows: r N(,

If the continuously compounded return on a stock worth $1 currently for a preset interval of time is distributed normally as follows: r ∼ N(μ, σ²) ≡ N(0.1, 0.2²), then what are

(a) The expected price of the stock after one interval.

(b) The variance of the stock price?

Step by Step Solution

★★★★★

3.40 Rating (162 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Expected price of the stock after one interval The expected value of a lognor... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Derivatives Principles And Practice Questions!

If the continuously compounded return on a stock is normal, then why is the stock price distribution lognormal?

The purpose of this exercise is to learn how to calculate stock returns for portfolio models using actual stock price data. Ten years worth of stock price data are included in the file StockReturns...

The stock price in KMW, Inc. is $50, $54, $56, and $48 on four consecutive days of trading. What is the continuously compounded return on the stock over this time frame

I need help answering question 13 and 17 in this homework set. Thank you that is all I need currently. HOMEWORK SET 4 Derivatives 1. What is a lower bound for the price of a 4 months call option on a...

Part 1 (60 Points) Multiple Choices Choose one best answer to each question. 1. (4 points) Which one of the following is a good approximation to a riskfree asset in Australia? (a) Gold (b) One-month...

CHAPTER 9 Hypothesis Tests CONTENTS 9.4 POPULATION MEAN: UNKNOWN One-Tailed Test Two-Tailed Test Summary and Practical Advice 9.5 POPULATION PROPORTION Summary 9.6 HYPOTHESIS TESTING AND DECISION...

please help me. I can pay only 70 dollars in this assignment Topic 1 & 2 Introduction to financial management and the Australian Taxation system Financial Markets 2 Learning Objectives Describe what...

BACKGROUND An SM bond is a 35-year Australian government bond with a face value of $1. They are marketed to consumers saving for retirement (who buy the S part) and investors (who buy the M part)....

please help me in 70 dollars to do this assignment iin APA style referencing Topic 1 & 2 Introduction to financial management and the Australian Taxation system Financial Markets 2 Learning...

Complete tabs 7.2, 7.5, 7.15, 7.19, and 7.24 in the attached Chapter 7 Excel spreadsheet. Complete tabs 8.1, 8.6, 8.9, 8.11, and 8.26 in the attached Chapter 8 Excel spreadsheet. An EXAMPLE tab is...

3. a. Explain the situation, when it is advisable to use exponential smoothing methods of forecasting over the moving average method of forecasting. For a product in the growth phase of the life...

Team conflicts are common and unavoidable in any team setup. Describe a conflict you encountered while working as a team; what was the conflict, and how was it resolved? If you don't have an example...

\ table [ [ Nov . 1 Inventory, 8 0 units at $ 9 7

Why was it hard for Jake to admit his newest venture was not going to work? H-857

A water tank consists of a cylindrical part of radius r and height h and a hemispherical top. The tank is to be constructed to hold 600 m 3 when filled. The surface area of the cylindrical part is...

A fence around a field is shaped as shown in Figure P12. It consists of a rectangle of length L and width W, and a right triangle that is symmetrical about the central horizontal axis of the...

A fenced enclosure consists of a rectangle of length L and width 2R and a semicircle of radius R, as shown in Figure P13. The enclosure is to be built to have an area A of 2000 ft 2 . The cost of the...

eBook Show Me How Question Content Area Income Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began...

A layer consists of small individual unit called _ _ _ _ _ _ _ Activation value Neuron Bias Weight

Synovec Company is growing quickly. Dividends are expected to grow at a rate of 30 percent for the next three years, with the growth rate falling off to a constant 4 percent thereafter. If the...