A stock price is $100.Volatility is estimated to be 20% per year.What is an estimate of the standard deviation of the change in the stock price in one week?
A) $0.38
B) $2.77
C) $3.02
D) $0.76

Question

Quizplus · Accepted Answer

The standard deviation of the stock price change over a given time period can be estimated using the formula for annual volatility: $ \sigma_{\text{annual}} = \text{Volatility} \times \text{Price} $. For a week, this needs to be adjusted by the square root of the time fraction (1 week / 52 weeks = 1/52), because volatility scales with the square root of time. Thus, the weekly standard deviation is $ 0.20 \times 100 \times \sqrt{1/52} \approx \$2.77 $.

A Stock Price Is $100