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E120

Homework 8 Solutions

1. (a) No, they are dependent.


To prove this, we will show Pr[X = 2, Y = 0] 6= Pr[X = 2] Pr[Y = 0].
Note that Pr[X = 2, Y = 0] = 16 16 =
by having both rolls resulting in 1s.
Now, note that Pr[X = 2] =
both rolls resulting in 1s.

1
,
36

1
,
36

since the only way for this to happen is

since the only way for this to happen is by having

Furthermore, note that Pr[Y = 0] =

6
36

= 16 , since the possibilities are:

(1, 1), (2, 2), . . . , (6, 6).


Now observe the left hand side and the right hand side are not equal! So we have
shown they are dependent.
(b) The possible outcomes for rolling a die twice are as follow:
(1, 1)
(2, 1)
(3, 1)
(4, 1)
(5, 1)
(6, 1)

(1, 2)
(2, 2)
(3, 2)
(4, 2)
(5, 2)
(6, 2)

(1, 3)
(2, 3)
(3, 3)
(4, 3)
(5, 3)
(6, 3)

(1, 4)
(2, 4)
(3, 4)
(4, 4)
(5, 4)
(6, 4)

(1, 5)
(2, 5)
(3, 5)
(4, 5)
(5, 5)
(6, 5)

The corresponding values for X are:


2
3
4
5
6
7

3
4
5
6
7
8

4
5
6
7
8
9

5
6
7
8
9
10

6
7
8
9
10
11

7
8
9
10
11
12

And the corresponding values for Y are:


0 1 2 3 4 5
1
0 1 2 3 4
2
1
0 1 2 3
3
2
1
0 1 2
4
3
2
1
0 1
5
4
3
2
1
0

(1, 6)
(2, 6)
(3, 6)
(4, 6)
(5, 6)
(6, 6)

Cov(X, Y ) = E[XY ] E[X] E[Y ]. First note that E[Y ] = 0 by the usual
computations (or you can observe its possible values are symmetric, and the
1
probability is 36
for each case, hence the expected value must be 0). So that the
second term on the right hand side is 0. Next, we shall find XY , and compute its
expected value.
The possible values for X Y are:
0 3 8 15 24 35
3
0 5 12 21 32
8
5
0 7 16 27
15 12
7
0 9 20
24 21 16
9
0
11
35 32 27
20
11
0
You should quickly verify that E[XY ] = 0.
So that Cov(X, Y ) = 0 as claimed.
2. (a) Cov(X, Y ) = E[XY ] E[X] E[Y ]. Observe the following:

1
X=
1

1
Y =
1

if ball is even
if ball is odd
if ball is 0 or 00
if ball is even
if ball is odd
if ball is 0 or 00

So that we obtain the product XY by multiplying corresponding terms:

1 if ball is even
XY =
1 if ball is odd

+1 if ball is 0 or 00
18
18
2
+ (1) 38
+ 1 38
= 34
.
38
38
18
2
2
E[X] = 1 18
+ (1) 38
+ (1) 38
= 38
.
38
18
18
2
2
E[Y ] = (1) 38 + 1 38 + (1) 38 = 38 .
So that Cov(X, Y ) = 34
2
2
= 0.8975.
38
38
38

Hence E[XY ] = (1)

(b) Now observe:

1
X=

if
if
if
if

ball
ball
ball
ball

is
is
is
is

even
odd
0
00

1
Z=

35

if
if
if
if

ball
ball
ball
ball

is
is
is
is

even
odd
0
00

So that their product XZ has these values:

(+1)(1)

(1)(1)
XZ =

(1)(1)

(1)(+35)

if
if
if
if

ball
ball
ball
ball

is
is
is
is

even
odd
0
00

We then have the following:


E[XZ] = (1)

18
38

1
1
+ (1)(1) 18
+ (1)(1) 38
+ (1)(35) 38
= 17
.
38
19

2
.
E[X] = 38
18
18
1
1
2
E[Z] = (1) 38
+ (1) 38
+ (1) 38
+ 35 38
= 38
.

So that Cov(X, Z) = E[XZ] E[X] E[Z] = 0.8975.


(c)

(+1)(1)

(1)(1)
XW =

(1)(35)

(1)(1)

if
if
if
if

ball
ball
ball
ball

is
is
is
is

even
odd, and 6= 1
1
0 or 00

2
We can show E[XW ] = 34
, and E[W ] = 38
. So that Cov(X, W ) = 324
.
38
361

(d)

(1)(1)

(+1)(1)
YW =

(+1)(+35)

(1)(1)

if
if
if
if

ball
ball
ball
ball

So that E[Y W ] = 1, and thus Cov(Y, W ) =

is
is
is
is

even
odd, and 6= 1
1
0 or 00

360
.
361

3. (a) RP = 0.2R1 +0.8R2 = E[RP ] = 0.2E[R1 ]+0.8E[R2 ] = 0.20.1+0.80.15 = 0.14.


Var[RP ] =
=
=
=

Var[0.2R1 + 0.8R2 ]
0.22 Var[R1 ] + 0.82 Var[R2 ] + 2 0.2 0.8 Cov(R1 , R2 )
0.22 0.04 + 0.82 0.09 + 2 0.2 0.8 0.2 0.2 0.3
0.06304

(b) E[RP ] = 0.125, and Var[RP ] = 0.0385.

(c) We want w such that 0.12 = w 0.1 + (1 w) 0.15 = w = 53 , i.e. the desired

portfolio is 53 , 25 .
2
2
The variance is 35 Var[R1 ] + 52 Var[R2 ] + 2 35 25 Cov(R1 , R2 ) = 0.03456.
(d) We want w such that w2 Var[R1 ]+(1w)2 Var[R2 ]+2w (1w)Cov(R1 , R2 ) =
0.16. Solving yields two possible solutions:
w=
w=

4 211+39
.
53

4 21139
.
53

(e) We want to solve min w2 Var(R1 ) + (1 w)2 Var(R2 ) + 2w(1 w) Cov(R1 , R2 ).


w

By taking the derivative with respect to w and set it equal to 0, I find w =


The variance is 0.032604.

39
.
53

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