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PS1F10 - Name Peter the Anteater Problem Set 1 Econ 122 B...

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Name: Peter the Anteater Problem Set 1 Econ 122 B – Applied Econometrics Due October 5 2010 at the beginning of lecture FIRST STEP: PLEASE TYPE YOUR NAME IN THE UPPER RIGHT CORNER OF THIS DOCUMENT. Just erase “Peter the Anteater” and type your name. The following problem set will use the wage1.xls file found on the course website. Along with the excel file, there is a text file wagedes.txt containing the variable description. For all questions, please paste the necessary output from eViews and answer the question below the output. You will then print this out, staple it , and hand it in on the due date. 1. Consider the mortgage security examples give in the first lecture where each mortgage returns $100 with probability .7 and 0 otherwise . For each of the two models (independence and dependence due to falling home prices) compute the mean and variance of a security comprised of one third three mortgages (for example, if only one of the mortgages pays off, then each security returns $33.33) .
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