Suppose you observe the following month-end stock prices for stocks A and B:
Day
0 1 2 3 4
Stock A 100 105 102 97 100
Stock B 100 105 150 97 100
For each stock:
a) compute the mean monthly continuously compounded return. What is the annual return?
b) compute the mean monthly standard deviation. What is the annual standard deviation?
c) Evaluate the statement: "The estimate of the mean depends only on the beginning and ending stock prices; the estimate of the standard deviation depnds on all prices."