Question
The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue. Let P1 be the unknown price of
The below three graphs show probability density functions (PDF) of three different random variables Red, Green and Blue. Let P1 be the unknown price of a stock in one year. P1 is a random variable. Let P0=1, so the share price now is $1. This one dollar is a constant, it is not a variable.
Which of the below statements is NOT correct?
a.
Green is the log gross discrete return (LGDR).
b.
Blue is log-normally distributed, and the median is higher than the mean.
c.
Green is a stock's continuously compounded return.
d.
Blue is a stock's future price (P1), with a minimum value of zero.
e.
Red is a stock's net discrete return (NDR), with a minimum value of negative one.
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