Math Is Fun Forum

lindah

Member

Registered: 2010-01-25

Posts: 121

Joint distribution E[P]

Hi guys,

Return of two stocks are joint normally with
mean of stock 1=5% , mean of stock 2 =4.4%, variance stock 1 =0.25, Variance stock 2 = 0.16
The correlation is 0.3.
The price of the first stock is $10.50 and the second is $15.
If invested in 2 stocks of firm 1 and 5 stocks of firm 2 - find the expected return.
If it is known that the return of stock 1 is 6%, find the return and standard deviation of stock 2.

I have calculated the expected return of the portfolio as 4.57%.

However I cannot figure out the second part of the question: finding the return and stdev of stock 2. I was thinking along the lines of using correlation/covariance formulas and solve for the missing variable, but seem to unable to do this as it all involves expected returns.

Thank you in advance for any feedback
Linda

lindah

Member

Registered: 2010-01-25

Posts: 121

Re: Joint distribution E[P]

I have figured this one out: it concerns properties of a bivariate normal density.

Thanks and Regards,
Linda

Last edited by lindah (2011-04-26 21:07:14)

bobbym

bumpkin

From: Bumpkinland

Registered: 2009-04-12

Posts: 109,606

Re: Joint distribution E[P]

Hi lindah;

What textbook are you working out of?

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