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distributions of the two returns are given below. a
P(X = a) -5%
P(Y = b) -3%
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
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
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This note was uploaded on 02/27/2010 for the course ISOM ISOM111 taught by Professor Anthonychan during the Spring '09 term at HKUST.
- Spring '09