ct010s07 - UNSW ACTL1001 Actuarial Studies and Commerce...

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Unformatted text preview: UNSW ACTL1001 Actuarial Studies and Commerce Sample Solutions 7 Exercise 1 1. For Investment A we have E [ A ] = 21 100 6250 + 74 100 12500 + 5 100 18750 = 11500 Variance = 21 100 (6250- 11500) 2 + 74 100 (12500- 11500) 2 + 5 100 (18750- 11500) 2 = 9 , 156 , 250 standard deviation = p 9 , 156 , 250 = 3025 . 9 For Investment B we have E [ B ] = 21 100 18750 + 74 100 12500 + 5 100 6250 = 13500 Variance = 21 100 (18750- 13500) 2 + 74 100 (12500- 13500) 2 + 5 100 (6250- 13500) 2 = 9 , 156 , 250 standard deviation = p 9 , 156 , 250 = 3025 . 9 1 2. Expected utilities are E [ U ( A )] = 21 100 6250- . 000005 6250 2 + 74 100 12500- . 000005 12500 2 + 5 100 18750- . 000005 18750 2 = 10793 E [ U ( B )] = 21 100 18750- . 000005 18750 2 + 74 100 12500- . 000005 12500 2 + 5 100 6250- . 000005 6250 2 = 12543 3. Investment B is preferred. If we look at the expected returns and stan- dard deviations we see that both investments have the same standard...
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This note was uploaded on 06/12/2011 for the course ASB 1001,2522, taught by Professor Nicole during the One '09 term at University of New South Wales.

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ct010s07 - UNSW ACTL1001 Actuarial Studies and Commerce...

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