A broker has calculated the expected values of two different financial instrumen
ID: 3245451 • Letter: A
Question
A broker has calculated the expected values of two different financial instruments X and Y Suppose that E(X) = exist113. E(Y) = exist87, SD(X) = exist12 and SD(Y) = exist9. Find each of the following a) E(X + 10) and SD(X + 10) b) E(5Y) and SD(5Y) c) E(X + Y) and SD(X + Y) d) What assumption must you make in part c? a) Find E(X + 10) and SD(X + 10) E(X + 10)= (Simplify your answer Do not include the exist symbol in your answer.) SD(X + 10) = (Simplify your answer Do not include the exist symbol in your answer.) b) Find E(5Y) and SD(5Y) E(5Y) = (Simplify your answer Do not include the S symbol in your answer.) SD(5Y) = (Simplify your answer Do not include the S symbol in your answer.) c) Find E(x + Y) and SD(X + Y).Explanation / Answer
a)
E(X+10) = E(x) + 10
= 113 + 10 = 123
SD(X+10) = SD(X) = 12
b)
E(5Y) = 5 E(Y)
= 5 * 87
= 435
SD(5Y) = 5 SD(Y)
= 5 * 9
= 45
c)
E(X+Y) = E(X) + E(Y)
= 113 + 87
= 200
SD(X+Y) = sqrt(SD(X)^2 + SD(Y)^2)
= sqrt(12^2 + 9^2)
= 15
d)
correlation is zero
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