Question

In: Finance

1.A key issue with modeling net returns as a normal distribution is A. Returns only make...

1.A key issue with modeling net returns as a normal distribution is

A.

Returns only make sense in the long run. Hence, in the short run, returns do not follow normal distribution
B.

Stock Returns have a finite downside of -100%
C.

Due to stock price decimalization, some returns are irrational numbers which are not part of the normal distribution
D.

Returns are not mean zero

2.

In a firm commitment procedure, the majority of risk of the issue is borne by

A.

Underwriter Syndicate
B.

Designated Market Maker
C.

Issuing Firm
D.

Credit rating agencies

Solutions

Expert Solution

1) option (C)

Due to stock price decimalization, some returns are irrational numbers which are not part of the normal distribution

As the stock price plays an important role option (C) is correct remaining do not be feasible.

2) option (A)

Underwriter syndicate

The underwriter is completely responsible of the firm in commitment procedure.

jeff jeffy answered 2 years ago
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