CFA Practice Question
Which of the following is correct?
A. If random variable Y has a lognormal distribution, then X = log(Y) has a normal distribution.
B. Suppose the random variable X is normally distributed, then the random variable Y = log(X) has a lognormal distribution.
C. The lognormal distribution is a good approximation for returns of many financial assets.
Explanation: The lognormal distribution is a good approximation for prices (not returns) of many financial assets, the normal distribution for returns of many financial assets.
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