Suppose Returns on a Stock Are Lognormally Distributed with Expected

question 2

Multiple Choice

Suppose returns on a stock are lognormally distributed with expected (annualized) mean of of 0.10 and standard deviation of 0.20.What is the expected simple return on the stock for one month?

• A)0.83
• B)1.01
• C)1.08
• D)1.13

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Definitions:

Customer Margin

The profit generated from a specific customer, calculated by subtracting the costs associated with serving that customer from the revenue earned from them.

Total Overhead Cost

The sum of all indirect costs involved in operating a business, including administrative and managerial expenses.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, providing a more accurate reflection of the costs associated with producing specific products or services.

Activity Cost Pools

A method in managerial accounting used to allocate indirect costs to products or services based on specific activities that drive costs.