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Unformatted text preview: (b) Calculate the variance of the rate of return for each investment. (c) Suppose the two rates of return are independent of each other. Jack has $360 to invest in the two alternatives. In order to minimize the overall variance of Jacks resulting portfolio, how much should be allocated to each opportunity (all $360 has to be invested in these two options). Hint: if X and Y are independent random variables and if a and b are constants, then var( aX + bY ) = a 2 var( X ) + b 2 var( Y ) . 3. Uncle Fester is a practical joker. He carries two quarters (coins) in his pocket. One is a regular quarter but the other has a head on both sides. Fester randomly draws one coin from his pocket, ips it, and it comes up heads. Calculate the probability that the other side of the coin is also heads....
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- Winter '08