hard · Quantitative Finance prob-stats
A stock price follows geometric Brownian motion dS_t=μ S_t,dt+σ S_t,dW_t with μ=10% and σ=20% per annum.
Applying Itô's lemma to f(S_t)=S_t^4, what is the instantaneous drift rate of S_t^4 — the coefficient of dt in d(S_t^4) divided by S_t^4?
- 40%
- 56%
- 64%
- 80%
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