Mid2Problems1

# Mid2Problems1 - Midterm Exam 2 Practice Problems-...

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Midterm Exam 2 Practice Problems- Econometrics 120A 1. Consider the following ﬁctional joint probability distribution for returns on stocks and bonds. Stock returns are entered in the left most column and bond returns in the top most row. Stocks/Bonds - 10% 0% 10% - 10% 1 6 1 12 1 6 0% 1 12 0 1 12 10% 1 6 1 12 1 6 (a) What is the probability that stock returns are 10%? What is the probability that stock returns are 0%? What is the probability that stock returns are - 10%? (b) What is the mean of stock returns? (c) Are stock returns and bond returns independent? Justify your answer. (d) What is the covariance between stock and bond returns? (e) Comment on your answers to (c) and (d). Do they contradict each other? What is the relation- ship between covariance and independence? 2. A factory is concerned about the quality of their product. They sample four products from the production line and let X i = 1 if product # i is defective, and X i = 0 otherwise. The probability that a product is defective is 0.5, that is

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## This note was uploaded on 11/30/2010 for the course ECON 120A 1684210 taught by Professor Elliot during the Spring '10 term at UCSD.

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Mid2Problems1 - Midterm Exam 2 Practice Problems-...

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