
Explanation:
To annualize daily volatility, we use the square root of time rule. Since there are typically 252 trading days in a year, the annualized volatility is calculated as:
Ο_annual = β(252 Γ ΟΒ²_daily)
Given daily volatility = 0.3% = 0.003
Ο_annual = β(252 Γ 0.003Β²) = β(252 Γ 0.000009) = β0.002268 = 0.047623 = 4.7623%
This matches option D (4.76%).
Key Concept: The square root of time rule assumes returns are independent and identically distributed (i.i.d.), which allows volatility to scale with the square root of time.
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