Question

Problem 2.1. A stock is trading at $100. Assume that the stock price follows lognormal distribution. The expected return on the stock is 5% and the volatility of the stock return is 40% per annum. Let S be the stock price after six months. (a) What is the mean and standard deviation of ln(S) (natural log of S)? (b) What is the median (50th percentile value) value of ln(S)? (c) What is the median value of S?

Answer 1

a) mean = -0.4778

Sd = 2.0431

b) median = -0.4778

c) median = 0.6201

Explanation:

The attached picture shows the whole solution, and I hope it helps. Thank you.