AnswersTest1

AnswersTest1 - NEW YORK UNIVERSITY DEPARTMENT OF ECONOMICS...

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NEW YORK UNIVERSITY DEPARTMENT OF ECONOMICS Statistics ECON-UB.18.011: Fall 2011 Professor Roman Frydman Solutions to TEST#1 Please answer all questions. Total 25 points. Problem 1 . (4 points) Consider the following sample { 1, 2, 3, 4, 5 } . A) What number should be added or subtracted to each one of numbers in the sample, so the resulting sample has a mean zero? Compute and brie±y explain. Answer: Sample average should be subtracted: Here, the sample average of the 5 numbers is 3. B) By what number should you divide each number in the sample, so the resulting sample has a variance of 1? Answer: Each number should be divided by sample standard de- viation so that te sample has sample standard deviation of 1 (note that sample standard deviation of 1 implies sample variance of 1). Here, sample standard deviation is 2 . 5. Problem 2 . (5 points) Consider two randomly selected corporate bonds: A and B. Suppose that the probability that bond A defaults is 0.5. If bond A defaults, the probability that bond B defaults is 0.75, whereas if bond A does not
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AnswersTest1 - NEW YORK UNIVERSITY DEPARTMENT OF ECONOMICS...

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