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CFA Level 1 Question of the Week - Quantitative Methods

Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 141 Associate
edited June 2017 in Level 1 Questions
Which of the following statements is LEAST accurate regarding the properties of lognormal distributions?

CFA Level 1 Question of the Week - Quantitative Methods 9 votes

A. Lognormal distributions are skewed to the right.
22% 2 votes
B. Lognormal distributions are more often used than standard distributions to model asset prices.
0% 0 votes
C. Lognormal distributions can take negative values.
77% 7 votes

Comments

  • Matt_AnalystPrepMatt_AnalystPrep MontrealPosts: 141 Associate
    The correct answer is C.

    Lognormal distributions are bounded by 0 because they cannot take negative values. Since normal distributions can take negative values, lognormal distributions are more suitable for describing distributions of asset prices.

    Exam Tip: If you have negative values, your data isn't lognormal.
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