A stock price is $100. Volatility is estimated to be 20% per year. What is an estimate of the standard deviation of the change in the stock price in one week?A.$0.38B.$0.76C.$3.02D.$2.77
Question
A stock price is 0.38B.3.02D.$2.77
Solution 1
To calculate the standard deviation of the change in the stock price in one week, we need to adjust the annual volatility to a weekly basis.
The formula to adjust volatility is:
Weekly Volatility = Annual Volatility / sqrt(Number of weeks in a year)
Given that there are approximately 52 weeks in a year, the calculation would be:
Weekly Volatility = 20% / sqrt(52) = 0.0277 or 2.77%
So, the standard deviation of the change in the stock price in one week is estimated to be 2.77%. Therefore, the correct answer is D. $2.77.
Solution 2
To calculate the standard deviation of the change in the stock price in one week, we need to adjust the annual volatility to a weekly basis.
The formula to adjust volatility is:
Weekly Volatility = Annual Volatility / sqrt(Number of weeks in a year)
Given that there are approximately 52 weeks in a year, the calculation would be:
Weekly Volatility = 20% / sqrt(52) = 0.0277 or 2.77%
So, the standard deviation of the change in the stock price in one week is estimated to be 2.77%. Therefore, the correct answer is D. $2.77.
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