Question 1
1 points
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Melissa has invested 40% of her funds in Tbills and 60% of her
funds in stocks. If X is the annual return on Tbills and Y the
annual return on stocks, the portfolio rate of return is:
R= 0.4X + 0.6Y
The returns X and Y are random variables because they vary from
year to year:
X= annual return on Tbills μ
X
= 6 σ
X
= 3
Y= annual return on stocks μ
Y
= 10 σ
Y
= 8
correlation between X and Y ρ = 0.2
What is σ
R
(rounded to four decimal places
)?
4.7091
Question
2
1 points
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The insurance company sees that in the entire population of
homeowners, the mean loss from fire is μ
= $600 and the standard
deviation of the loss is σ = $500. What is the standard deviation
of the
total loss
for 8 policies (rounded to four decimal
places
)? (Note that losses on separate policies are independent.)
Question
3
1 points
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The insurance company sees that in the entire population of
homeowners, the mean loss from fire is μ
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 Spring '08
 ABDUS,S.
 Standard Deviation, Probability theory, Advisory Board

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