# A sample question

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

1. ### saritaGuest

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%.

1)2%
2)2.9%
3)4.7%
4)1.1%

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%.

Best,
s

3. ### saritaGuest

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