# Joint distribution of stocks, E[P] and Var[P]

• Apr 24th 2011, 11:10 PM
lindah
Joint distribution of stocks, E[P] and Var[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 (Doh)

Thank you in advance for any feedback
Linda
• Apr 26th 2011, 03:56 AM
lindah
My attempt
It is based on bivariate normal density properties.

Thanks and Regards,
Linda