ECON 250 Midterm: ECON 250 Pastmidterm2 Econ250midterm2W10AnswerGuide

• School: Queen's University
• Department: Economics
• Course: ECON 250
• Professor: All

Document Summary

Economics 250 midterm test 2: answer guide: (a) the marginal probabilities are 0. 5 and 0. 5 so the mean is 1. 5. (b) the conditional probabilities are . 8 and . 2 so the conditional mean is . 8(3) + . 2(0) = 2. 4: (a) the mean return on the portfolio is 0. 5(2)+0. 5(6) = 4. 2 p = (0. 5)2(1) + (0. 5)2(4) + 2(0. 5)(0. 5)[(0. 8)(1)(2)] = 2. 05. With rp n (4, 2. 05), z = = 2. 794 so the probability is 0. 0026 or 0. 26 percent. (b) the corresponding z statistics for holding just the rst asset or just the second asset are -2 and -3 respectively. So holding just the second asset would reduce the probability of the return being negative: (a) with n = 30 the degrees of freedom are 29 and t29,0. 025 = 2. 045. 30 (b) increasing the sample size n would increase the e ciency of the estimator (reduce the sample variance of x): (a) we know that.