aianjie

 

If you know that X is equal to 1, the probability that Y is equal to 2 is closest to:

A) 0.50

B) 0.15

C) 0.38

D) 0.30

aianjie

 

The correct answer is C

p(Y = 2|X = 1) = 0.15/(0.05 + 0.15 + 0.20) = 0.375.

aianjie

 

The variance of Y is closest to:

A) 2.27

B) 0.61

C) 1.51

D) 0.76

aianjie

 

3、

	Y = 1	Y = 2	Y = 3
X = 1	0.05	0.15	0.20
X = 2	0.15	0.15	0.30

The expected value of X is closest to:

A)    1.6

B)    1.5

C)   1.2

D)   1.8

aianjie

 

2、Tully Advisers, Inc., has determined four possible economic scenarios and has projected the portfolio returns for two portfolios for their client under each scenario. Tully’s economist has estimated the probability of each scenario as shown in the table below. Given this information, what is the expected return on portfolio A?

Scenario	Probability	Return on Portfolio A	Return on Portfolio B
A	15%	17%	19%
B	20%	14%	18%
C	25%	12%	10%
D	40%	8%	9%

A)    9.25%.

B)    11.55%.

C)   10.75%.

D)   12.95%.

aianjie

 

The correct answer is B

The expected return is equal to the sum of the products of the probabilities of the scenarios and their respective returns: = (0.15)(0.17) + (0.20)(0.14) + (0.25)(0.12) + (0.40)(0.08) = 0.1155 or 11.55%.

aianjie

 

2、An analyst has knowledge of the beginning-of-period expected returns, standard deviations of return, and market value weights for the assets that comprise a portfolio. The analyst does not require the covariances of returns between asset pairs to calculate the:

A) variance of the return on the portfolio.

B) correlations between asset pairs.

C) expected return on the portfolio.

D) reduction in risk due to diversification.

aianjie

 

The correct answer is C

All that is required to calculate the expected return for the portfolio is the portfolio weights and individual asset expected returns. All other items are functions of the covariance.

aianjie

 

AIM 2: List and discuss the properties of expected value.

1、There is a 30% chance that the economy will be good and a 70% chance that it will be bad. If the economy is good, your returns will be 20% and if the economy is bad, your returns will be 10%. What is your expected return?

A) 15%.

B) 17%.

C) 13%.

D) 18%.

aianjie

 

The correct answer is

Expected value is the probability weighted average of the possible outcomes of the random variable. The expected return is: ((0.3) × (0.2)) + ((0.7) × (0.1)) = (0.06) + (0.07) = 0.13.