A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the expected median stock price after 4 years?
A) $28.00
B) $32.33
C) $40.13
D) $54.60

Question

Quizplus · Accepted Answer

Using the formula: 
Expected Median Stock Price = initial stock price * e^( (mu - 0.5*sigma^2)*time)
where mu is the expected return and sigma is the standard deviation, we have:
Expected Median Stock Price = 28 * e^( (0.09 - 0.5*(0.19)^2)*4)
Expected Median Stock Price = $32.33. Therefore, the best choice is B.

A Stock Is Valued at $28