ECON 425
Key for ASSIGNMENT 2
Dr. AHN
1.
1)
100
101
100
Pr
Pr(
1.52)
0.9357
43/100
43/100
X
Z
.
2)
101
100
100
103
100
Pr
Pr(1.96
5.88)
1
0.975
0.025
43/165
43/165
43/165
X
Z
.
Or = 0.9986-0.025 = 0.9736
2.
Strategy I:
E(0.5x+0.5y) = 0.5×μ
X
+ 0.5×μ
Y
= 0.5×0.5 + 0.5×0.5 = 0.5.
Var(0.5x+0.5y) =
2
2
2
2
(0.5
0.5 )
(0.5)
2
(0.5)
(0.5)
(0.5)
0.25
4
0
0.25
4
2
X
XY
X
Y
Y
Var
x
y
Strategy II:
E(0.2x+0.8y) = 0.2×μ
X
+ 0.8×μ
Y
= 0.2×0.5 + 0.8×0.5 = 0.5.
Var(0.5x+0.5y) =
2
2
2
2
(0.2
0.8 )
(0.2)
2
(0.2)
(0.8)
(0.8)
0.04
4
0
0.64
4
0.68
4
2.72
X
XY
X
Y
Y
Var
x
y
The two strategies give us the same expected returns, but the Strategy I has the returns with
smaller variances.
It means that Strategy I is less risky while it earns the same returns as Strategy
II.
So, Strategy I is preferred.
3.
1)
2
700/100
7;
8100/99
81.818;
(
)
81.818/100
0.9045
Y
Y
s
SE Y
.
2)
(7
5) /0.9045
2.21
t
.
P-Val =
2
Pr(
|
|)
2
(1
Pr(
|
|))
2
(1
Pr(
2.21))
0.027
Z
t
Z
t
Z
.
P-Val < 10%.
Reject H
o
.
3)
c
2.33.
Since t < c, do not reject H
o
.
4.
1110;
123;
1000
Y
Y
s
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- Fall '09
- Econometrics, Variance, Harshad number, Trigraph, Upper and lower bounds
-
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