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1.010 Uncertainty in Engineering
Fall 2008
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1.010 Fall 2008
Homework Set #9
Due November 20, 2008 (in class)
1. Let
X
1
and
X
2
be the gains, in millions of dollars, from investing $1million in two
different stocks. The objective of investing is of course to maximize gains with a
minimum of uncertainty. Suppose that
X
1
and
X
2
have the following second moment
characteristics:
d
/10
5.9
2
5.9
3.5
d
/10
2.6
2
2
0
1
0.8
2
2.6
2.5
~
1
2
~
X
X
A
B
result.
(a) Which stock type would you prefer for investment?
(b) As an alternative, consider investing $500k in stock 1 and $500k in stock 2. Would
you consider this strategy more attractive? Give an intuitive explanation of your
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This note was uploaded on 11/29/2011 for the course CIVIL 1.00 taught by Professor Georgekocur during the Spring '05 term at MIT.
 Spring '05
 GeorgeKocur

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