The correct answer is C: The realized return is 26.7%, and the annual volatility is 9.6%.

To calculate the realized return over the 6-month period, we use the formula for continuously compounded returns:

$\text{Realized Return} = (1/T) \times \ln(\frac{S_t}{S_0})$

Where:

• $T$ is the time period in years (6 months = 0.5 years)
• $S_0$ is the initial stock price (INR 280)
• $S_t$ is the stock price at the end of the period (INR 320)

Plugging in the values:

$\text{Realized Return} = (1/0.5) \times \ln(\frac{320}{280}) = 2 \times \ln(1.1429) \approx 0.2671 \text{ or } 26.7\%$

For the annual volatility, we use the square root rule, which states that the annualized volatility is the monthly volatility multiplied by the square root of the number of periods in a year:

$\text{Annual Volatility} = \sigma \times \sqrt{12}$

Where:

• $\sigma$ is the monthly volatility (2.76%)

Calculating the annual volatility:

$\text{Annual Volatility} = 0.0276 \times \sqrt{12} \approx 0.0956 \text{ or } 9.6\%$

Option A is incorrect because it calculates the realized return as a simple percentage change, not using the continuous compounding formula. Option B incorrectly calculates the annual volatility by multiplying the monthly volatility by 12, without applying the square root rule. Option D is incorrect for both the realized return and the annual volatility calculations.