A stock price is $20.It has an expected return of 12% and a volatility of 25%.What is the stock price that has a 2.5% chance of being exceeded in one day? (For this question assume that there are 365 days in the year.)
A) $20.41
B) $20.51
C) $20.61
D) $20.71

Question

Quizplus · Accepted Answer

From the previous question the standard deviation of the change in one day is $0.26.There is a 2.5% chance that the stock price will increase by more than 1.96 standard deviations.The answer is therefore 20+1.96×0.26 = $20.51.The expected return in one day is small and can be ignored.

A Stock Price Is $20