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Math Help - Joint distribution of stocks, E[P] and Var[P]

  1. #1
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    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

    Thank you in advance for any feedback
    Linda
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  2. #2
    Junior Member
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    My attempt

    It is based on bivariate normal density properties.

    Thanks and Regards,
    Linda
    Last edited by lindah; April 27th 2011 at 01:10 AM.
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