Econ 281 Fall 2010 Problem Set 2 - Solutions

Econ 281 Fall 2010 Problem Set 2 - Solutions - Econ 281...

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Econ 281 Fall Quarter 2010 Problem Set 2 - Solutions 1. Book problems: 4.1; 4.3a-e, g; 4.4 Note: In problem 4.1 c the betahats are off In problem 4.1 d: Don’t square R2=0.08 Solutions: TSS=14,088
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2. Calculate the following Probabilities a. If Y~N(2,4) calculate Pr(Y<3)=.6915 b. If Y~N(4,9) calculate Pr(Y>0) =.9082 c. If Y~N(8,2) calculate Pr(6<Y<8) = .4207 3. Consider a portfolio consisting of two assets X and Y. Asset X has a mean return of 4% and a standard deviation of 9. Asset Y has a mean return of 12% and a standard deviation of 15. You have invested 70% of your money in asset X and 30% in asset Y. Assume that E(X|Y)=4%. What is the mean and standard deviation of the return of your portfolio? The general formula for the variance of two RVs is XY Y X c b c b Y c X b a V σ ± + = ± + 2 ) ( 2 2 2 2 . However, we need to find out about the value of the covariance. Since the conditional mean of the two RVs is equal
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This note was uploaded on 01/14/2012 for the course ECON 201 taught by Professor Witte during the Spring '08 term at Northwestern.

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Econ 281 Fall 2010 Problem Set 2 - Solutions - Econ 281...

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