15. Let the random variables X1 and X2 be the payoffs of two different Suppose E(X;)...

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Answer 1

Answer #1

Ans 15)

Expected Payoff for Investors=1/2(E(X1)+E(X2))-15
=0.5*(100+100)-15=$85

Yes this payoff is not random variable because though X1 and X2 are randoms E(X1) and E(X2) as well as V(X1) & V(X2) wont change

Hence Net payoff can not be random

Ans b)

Variance of Investor's payoff=(V(X1)*0.5^2+V(X2)*0.5^2+2*covariance (X1,X2))*(0.5*0.5)

=(10*0.25+10*0.25+0=$5)

variance of Investors Net payoff is $5

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Answer 2

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