Question 1

Given a mean of -7.8 and a standard deviation of 16 from a normally distributed sample,what is the probability of an observation being below 12.0?

Accepted Answer

A)  0.51 
B)  0.61 
C)  0.71 
D)  0.81 
A)  0.51 
B)  0.61 
C)  0.71 
D)  0.81 D

Question 2

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the price of the stock given a one standard deviation move up after 4 years?

Accepted Answer

A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60 
A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60 D

Question 3

What is the area under the standard normal distribution curve and is less than 0.654?

Accepted Answer

A)  0.5115 
B)  0.6215 
C)  0.7434 
D)  0.8283 
A)  0.5115 
B)  0.6215 
C)  0.7434 
D)  0.8283 C

Question 4

Given a mean of 4.5 and a standard deviation of 12 from a sample of variables,what is the equivalent draw from a standard normal distribution for 6.0?

Accepted Answer

A)  0.065 
B)  0.075 
C)  0.095 
D)  0.125 
A)  0.065 
B)  0.075 
C)  0.095 
D)  0.125

Question 5

Given a mean of 45 and a standard deviation of 32 from a normally distributed sample,what is the probability of an observation being between 35 and 75?

Accepted Answer

A)  0.35 
B)  0.45 
C)  0.55 
D)  0.65 
A)  0.35 
B)  0.45 
C)  0.55 
D)  0.65

Question 6

What assumption is made in the Black-Scholes model concerning volatility?

Accepted Answer

The assumption made

Question 7

Why might normally distributed returns appear non-normal?

Accepted Answer

The variance may change even t

Question 8

What is the probability that a number drawn from the standard normal distribution will NOT be between -1 and 1?

Accepted Answer

A)  0.22 
B)  0.32 
C)  0.42 
D)  0.52 
A)  0.22 
B)  0.32 
C)  0.42 
D)  0.52

Question 9

What is the probability that a number drawn from the standard normal distribution will be between -0.60 and 0.45?

Accepted Answer

A)  0.40 
B)  0.50 
C)  0.60 
D)  0.70 
A)  0.40 
B)  0.50 
C)  0.60 
D)  0.70

Question 10

Why do we assume a lognormal distribution in option pricing? Ask the class to explain the pluses and minuses to this assumption.Once the downfalls are established,probe students to find out if a better alternative exists.

Accepted Answer

We assume a lognormal distribution in op

Question 11

For a stock price that was initially $55.00,what is the price after 4 years if the continuously compounded returns for these 4 years are 4.5%,6.2%,8.9%,-3.2%?

Accepted Answer

A)  $64.80 
B)  $74.80 
C)  $84.80 
D)  $94.80 
A)  $64.80 
B)  $74.80 
C)  $84.80 
D)  $94.80

Question 12

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the expected price after 3 years?

Accepted Answer

A)  $78.83 
B)  $88.83 
C)  $98.83 
D)  $108.83 
A)  $78.83 
B)  $88.83 
C)  $98.83 
D)  $108.83

Question 13

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the price of the stock given a one standard deviation move up after 3 years?

Accepted Answer

A)  $64.41 
B)  $74.41 
C)  $84.41 
D)  $94.41 
A)  $64.41 
B)  $74.41 
C)  $84.41 
D)  $94.41

Question 14

Given a mean of -4.3 and a standard deviation of 26,what is the equivalent draw from a normal distribution for a standard normal sample variable of 0.67?

Accepted Answer

A)  -13.12 
B)  03.12 
C)  13.12 
D)  23.12 
A)  -13.12 
B)  03.12 
C)  13.12 
D)  23.12

Question 15

How are partial expectation prices converted to conditional expectation prices?

Accepted Answer

By dividing the partial expect

Question 16

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the expected median stock price after 3 years?

Accepted Answer

A)  $57.67 
B)  $67.67 
C)  $77.67 
D)  $87.67 
A)  $57.67 
B)  $67.67 
C)  $77.67 
D)  $87.67

Question 17

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the expected median stock price after 4 years?

Accepted Answer

A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60 
A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60

Question 18

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the expected price after 4 years?

Accepted Answer

A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60 
A)  $28.00 
B)  $32.33 
C)  $40.13 
D)  $54.60

Question 19

Give a very brief definition of conditional expected stock price.

Accepted Answer

It is the expected s

Question 20

In a lognormal model of stock price movement,describe the mean and variance of the continuously compounded returns.

Accepted Answer

The return is normally distrib

Exam 18: The Lognormal Distribution

Given a mean of -7.8 and a standard deviation of 16 from a normally distributed sample,what is the probability of an observation being below 12.0?

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the price of the stock given a one standard deviation move up after 4 years?

What is the area under the standard normal distribution curve and is less than 0.654?

Given a mean of 4.5 and a standard deviation of 12 from a sample of variables,what is the equivalent draw from a standard normal distribution for 6.0?

Given a mean of 45 and a standard deviation of 32 from a normally distributed sample,what is the probability of an observation being between 35 and 75?

What assumption is made in the Black-Scholes model concerning volatility?

Why might normally distributed returns appear non-normal?

What is the probability that a number drawn from the standard normal distribution will NOT be between -1 and 1?

What is the probability that a number drawn from the standard normal distribution will be between -0.60 and 0.45?

Why do we assume a lognormal distribution in option pricing? Ask the class to explain the pluses and minuses to this assumption.Once the downfalls are established,probe students to find out if a better alternative exists.

For a stock price that was initially $55.00,what is the price after 4 years if the continuously compounded returns for these 4 years are 4.5%,6.2%,8.9%,-3.2%?

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the expected price after 3 years?

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the price of the stock given a one standard deviation move up after 3 years?

Given a mean of -4.3 and a standard deviation of 26,what is the equivalent draw from a normal distribution for a standard normal sample variable of 0.67?

How are partial expectation prices converted to conditional expectation prices?

A stock is valued at $55.00.The annual expected return is 12.0% and the standard deviation of annualized returns is 22.0%.If the stock is lognormally distributed,what is the expected median stock price after 3 years?

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the expected median stock price after 4 years?

A stock is valued at $28.00.The annual expected return is 9.0% and the standard deviation of annualized returns is 19.0%.If the stock is lognormally distributed,what is the expected price after 4 years?

Give a very brief definition of conditional expected stock price.

In a lognormal model of stock price movement,describe the mean and variance of the continuously compounded returns.

Introduction to Derivatives

An Introduction to Forwards and Options

Insurance, collars, and Other Strategies

Introduction to Risk Management

Financial Forwards and Futures

Commodity Forwards and Futures

Interest Rate Forwards and Futures

Swaps

Parity and Other Option Relationships

Binomial Option Pricing: Basic Concepts

Binomial Option Pricing: Selected Topics

The Black-Scholes Formula

Market-Making and Delta-Hedging

Exotic Options: I

Financial Engineering and Security Design

Corporate Applications

Real Options

Monte Carlo Valuation

Brownian Motion and Itos Lemma

The Black-Scholes-Merton Equation

Risk-Neutral and Martingale Pricing

Exotic Options: 2

Volatility

Interest Rate and Bond Derivatives

Value at Risk

Credit Risk

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