A stock provides an expected return of 10% per year and has a volatility of 20% per year. What is the continuously compounded expected return in one year?
A) 6%
B) 8%
C) 10%
D) 12%

Question

Quizplus · Accepted Answer

We can use the formula for continuously compounded expected return, which is e^(mean+variance/2)-1. Plugging in the given values, we get e^(0.1-0.2^2/2)-1 = 0.077 or 7.7%. Therefore, the closest answer choice is B) 8%.

A Stock Provides an Expected Return of 10% Per Year