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Unformatted text preview: 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 T-bills μ X = 6 σ X = 4.2 Y= annual return on stocks μ Y = 14 σ Y = 15 correlation between X and Y ρ = -0.2 a) What is μ R ? b) What is σ R ? Round your final answer to four decimal places. #3) An insurance company sees that in the entire population of homeowners, the mean loss from fire is μ = $200 and the standard deviation of the loss is σ = $300. a) What are the mean and standard deviation of the total loss for 5 policies? (Losses on separate policies are independent.) b) What are the mean and standard deviation of the average loss for 5 policies? From book: 4.60 (page 269) 4.78 (page 287)...
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This note was uploaded on 11/07/2010 for the course PAM 2100 taught by Professor Abdus,s. during the Spring '08 term at Cornell University (Engineering School).
- Spring '08