2005-Fall-Midterm

The probability distributions of the two returns are

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ity distributions of the two returns are given below. a P(X = a) -5% 0.3 3% 0.4 b P(Y = b) -3% 0.4 8% 0.3 5% 0.6 Assume that X and Y are independent. In other words, the two events ‘X=a’ and ‘Y=b’ are independent for all a and b. ht tp :// ih om e. us t.h k/ ~c s_ gx x/ (a) Find E(X) and Var(X), the expected value and variance of the return for fund A. (b) What is P(X = -5%, Y = 5%)? (c) Calculate the probability that the sum of the two returns is equal to zero, that is, P(X + Y = 0). (d) Suppose the investor is interested in putting half of his money in both fund A and fund B. In this regard, the portfolio return Z = 0.5X + 0.5Y is of interest. Find the probability distribution of Z. (e) Find E(Z) and Var(Z). (f) Which investment, fund A or the portfolio, you will advise the employee to choose?...
View Full Document

This note was uploaded on 02/27/2010 for the course ISOM ISOM111 taught by Professor Anthonychan during the Spring '09 term at HKUST.

Ask a homework question - tutors are online