Compute densities

Now consider two stocks: Microsoft (ticker: MSFT) and Starbucks (ticker: SBUX). Let \(X\) denote the monthly return on the Microsoft stock and let \(Y\) denote the monthly return on the Starbucks stock. Assume that \(X\) is normally distributed with a mean \(0.05\) and a variance \((0.10)^{2}\), and that \(Y\) is normally distributed with a mean \(0.025\) and a variance \((0.05)^{2}\).

Values of a normal density can be computed with function dnorm(). For instance, the value of the standard normal density at 0 can be computed with dnorm(0). You can supply the mean and the standard deviation of the normal distribution via the arguments mean and sd, respectively.

For the grid of values in x_vals, compute the values of the assumed normal density for the return on Microsoft stock and assign it to MSFT.
For the grid of values in x_vals, compute the values of the assumed normal density for the return on Starbucks stock and assign it to SBUX.

Exercise

Compute densities

Instructions