Question

Let X and Y represent annual percentage returns of two utility bonds. The joint distribution of X and Y is given below. Assume that an investor has a fixed amount of money to be invested during the coming year. 10 .03 .03 .00 .00 04. .04 06 .06 04 .00 .02 .20 .02 10 08 08 .00 .04 04. 06 06 12 .00 03 03 04 Q7. Compute the expected value of the percentage return earned by the investor if she puts all of her money into the first utility bond (X). a) 10 b) 11 c) 12 d)9 Q8. Compute the expected value of the percentage return earned by the investor if she puts all of her money into the second utility bond (Y) a) 10 b) 11 c) 12 d) 9 Q9. Compute the expected value of the percentage return earned by the investor if she puts half of her money into each of the two bonds. a) 10 b) 11 c) 12 d) 9 Q10. Compute the standard deviation of the percentage return earned by the investor if she puts half of her money into each of the two bonds. a) 0.89 b) 0.94 c) 1.2 d) 0.5 Q11. Which of these strategies would you recommend if you are trying to minimize the risk? Invest in a) Only Xb) Only Y c) Split between X and Y d) There is not enough information to determine.

Answer 1

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