Let $S _ { T }$ Denote the Time- $T$ Price of a Stock And

question 14

Multiple Choice

Let $S _ { T }$ denote the time- $T$ price of a stock and $S _ { 0 }$ its current price.Suppose that for any $T$ , $\ln \left( \frac { S _ { T } } { S _ { 0 } } \right) : N \left( \mu _ { T } , \sigma ^ { 2 } T \right)$ for constant annual parameters $\mu$ and $\sigma$ .What does this imply about the returns process? Pick the most accurate of the following alternatives:

• A)The returns are independent and identically distributed over time.
• B)The returns are independent over time.
• C)The returns are normally distributed.
• D)None of the above.

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Definitions:

Population Means

The averages of different populations, providing a measure of central tendency for each population's data.

Large Samples

Refers to datasets that are sufficiently large to enable statistically meaningful analysis, often used to achieve more accurate estimates of population parameters.

Lower Confidence Bound

The lower limit of a confidence interval, indicating the smallest value that, based on the data, might be considered a plausible estimate of a parameter.

Population Proportions

A statistical measure that represents the fraction or percentage of units in a population that possess a certain trait or characteristic.