A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the expected price after 3 years?
A) $78.83
B) $88.83
C) $98.83
D) $108.83

Question

Quizplus · Accepted Answer

The expected price after 3 years is $78.83. This is calculated using the formula:Expected price = Current price * e^(expected return * time + 0.5 * standard deviation^2 * time^2)Expected price = $55.00 * e^(0.12 * 3 + 0.5 * 0.22^2 * 3^2)Expected price = $55.00 * e^(0.36 + 0.726)Expected price = $55.00 * e^1.086Expected price = $78.83

A Stock Is Valued at $55