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

question 17

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:

Money Supply

The total amount of money available in an economy at a specific time, including cash, bank deposits, and other liquid assets.

Price Level

A summarial mean of present prices for goods and services in the broad economy.

Unemployment

The situation when individuals who are capable of working and are looking for a job cannot find employment.

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