Solutions to Problem Set 1

The meanvariance criterion is the same for both so

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Unformatted text preview: n is exactly as before, except that now insurance costs $3000 rather than $2000. Since  2,991,760 <  3k, you would still want to buy insurance. Question 4. Consider the following investments. Investment 1 pays either 100 or  ­100 with probability 0.5 each. Investment 2 pays 200 with probability 0.125, 0 with probability 0.75, or  ­200 with probability .125. a) Calculate the mean and the variance of Investment 1. Mean = 0. b) Calculate the mean and the variance of Investment 2. Variance = 1...
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