CFA Practice Question

CFA Practice Question

Consider a stock XYZ whose returns are normally distributed and continuously compounded. The price of XYZ stock has a:
A. binomial distribution.
B. lognormal distribution.
C. normal distribution.
Explanation: Continuous compounding means that the price will be P0*e(r*t), where P0 is the starting price. As r is normally distributed, the price will be lognormally distributed.

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