For log-normally distributed returns the annul compound returns is equal to:
A) the arithmetic average returns minus half the variance
B) the arithmetic average returns plus half the variance
C) the arithmetic average returns minus half the standard deviation
D) the arithmetic average returns plus half the standard deviation

Question

Quizplus · Accepted Answer

For log-normally 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 log-normal distribution's properties and the adjustment needed for the compounding effect.

For Log-Normally Distributed Returns the Annul Compound Returns Is Equal