A sample question

Discussion in 'P1.T1. Foundations of Risk (20%)' started by sarita, May 16, 2011.

  1. sarita

    sarita Guest

    Dear David, kindly see the below questions:

    consider two stocks, A and B. Assume their annual returns are jointly normaly distributed, the marginal distribution of each stock has mean 2% and standard deviation of 10%, an corrolation of 0.9. what is the expected return of stock A if the annual return of stock B is 3%.


    The answer is 2.9%.. however, shouldn't be 2.7%..(3%*.9)??

    It's a very simple question; however, i can't get 2.9%.

  2. David Harper CFA FRM CIPM

    David Harper CFA FRM CIPM David Harper CFA FRM (test)

  3. sarita

    sarita Guest

    Many thanks for the prompt response.. and i thought it is an easy question!.. i was quite wrong. tx a lot.

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