Stock Watson 3U ExerciseSolutions Chapter2 Instructors
Stock Watson 3U ExerciseSolutions Chapter2 Instructors
Stock Watson 3U ExerciseSolutions Chapter2 Instructors
*Limited
distribution:
For
Instructors
Only.
Answers
to
all
odd-numbered
questions
are
provided
to
students
on
the
textbook
website.
If
you
find
errors
in
the
solutions,
please
pass
them
along
to
us
at
[email protected].
2.1. (a) Probability distribution function for Y
Outcome (number of heads)
Y=0
Probability
0.25
(b) Cumulative probability distribution function for Y
Outcome (number of
Y<0
0Y<1
heads)
Probability
0
0.25
(c) Y = E (Y ) = (0 0.25) + (1 0.50) + (2 0.25) = 1.00
Using Key Concept 2.3: var(Y ) = E (Y 2 ) [ E (Y )]2 ,
and
Y=1
0.50
Y=2
0.25
1Y<2
Y2
0.75
1.0
Y = E (Y ) = 0 Pr (Y = 0) + 1 Pr (Y = 1)
= 0 0.22 + 1 0.78 = 0.78,
X = E ( X ) = 0 Pr ( X = 0) + 1 Pr ( X = 1)
= 0 0.30 + 1 0.70 = 0.70.
(b)
X2 = E[( X X )2 ]
= (0 0.70)2 Pr ( X = 0) + (1 0.70) 2 Pr ( X = 1)
= (0.70)2 0.30 + 0.302 0.70 = 0.21,
Y2 = E[(Y Y )2 ]
= (0 0.78)2 Pr (Y = 0) + (1 0.78)2 Pr (Y = 1)
= (0.78)2 0.22 + 0.222 0.78 = 0.1716.
(c)
XY
0.084
=
= 0.4425.
XY
0.21 0.1716
(a)
corr (W , V ) =
WV
3.528
=
= 0.4425.
W V
7.56 8.4084
2.4. (a) E ( X 3 ) = 03 (1 p) + 13 p = p
(b) E ( X k ) = 0k (1 p) + 1k p = p
(c) E ( X ) = 0.3
E ( X )3 = E ( X 3 ) 3[ E ( X 2 )][ E ( X )] + 2[ E ( X )]3
= 0.3 3 0.32 + 2 0.33 = 0.084
Alternatively, E ( X )3 = [(1 0.3)3 0.3] + [(0 0.3)3 0.7] = 0.084
Thus, skewness = E ( X )3/ 3 = .084/0.463 = 0.87.
To compute the kurtosis, use the formula from exercise 2.21:
2.5.
E(Y ) = Y = 0 Pr(Y = 0) + 1 Pr (Y = 1)
= 0 0.068 + 1 0.932 = 0.932.
(b)
Unemployment Rate =
#(unemployed)
#(labor force)
Pr (Y = 0|X = 0) =
Pr ( X = 0, Y = 0) 0.053
=
= 0.083,
Pr ( X = 0)
0.639
Pr (Y = 1|X = 0) =
Pr ( X = 0, Y = 1) 0.586
=
= 0.917,
Pr ( X = 0)
0.639
Pr (Y = 0|X = 1) =
Pr ( X = 1, Y = 0) 0.015
=
= 0.042,
Pr ( X = 1)
0.361
Pr (Y = 1|X = 1) =
Pr ( X = 1, Y = 1) 0.346
=
= 0.958.
Pr ( X = 1)
0.361
(e) The probability that a randomly selected worker who is reported being
unemployed is a college graduate is
Pr ( X = 1|Y = 0) =
Pr ( X = 1, Y = 0) 0.015
=
= 0.221.
Pr (Y = 0)
0.068
(f) Educational achievement and employment status are not independent because
they do not satisfy that, for all values of x and y,
Pr ( X = x|Y = y ) = Pr ( X = x).
For example, from part (e) Pr ( X = 0|Y = 0) = 0.778, while from the table
Pr(X = 0) = 0.639.
(b) corr ( M, F ) =
cov( M , F )
M F
(d) First you need to look up the current Euro/dollar exchange rate in the Wall Street
Journal, the Federal Reserve web page, or other financial data outlet. Suppose that
this exchange rate is e (say e = 0.75 Euros per Dollar or 1/e = 1.33 Dollars per
Euro); each 1 Eollar is therefore with e Euros. The mean is therefore eC (in
units of thousands of euros per year), and the standard deviation is eC (in units
of thousands of euros per year). The correlation is unit-free, and is unchanged.
1
1
1
Z = E (Y 1) = ( Y 1) = (1 1) = 0,
2
2
2
1
1
1
Z2 = var (Y 1) = Y2 = 4 = 1.
4
2
4
2.9.
Value of Y
Value of X
1
5
8
Probability distribution
of Y
14
0.02
0.17
0.02
0.21
22
0.05
0.15
0.03
0.23
30
0.10
0.05
0.15
0.30
40
0.03
0.02
0.10
0.15
Probability
Distribution
65
of X
0.01
0.21
0.01
0.40
0.09
0.39
0.11
1.00
(a) The probability distribution is given in the table above.
E(Y ) = 14 0.21+ 22 0.23+ 30 0.30 + 40 0.15 + 65 0.11 = 30.15
E(Y 2 ) = 142 0.21+ 222 0.23+ 302 0.30 + 402 0.15 + 652 0.11 = 1127.23
var(Y ) = E(Y 2 ) [E(Y )]2 = 218.21
Y = 14.77
(b)
The
conditional
probability
of
Y|X
=
8
is
given
in
the
table
below
Value of Y
14
22
30
40
65
0.02/0.39
0.03/0.39
0.15/0.39
0.10/0.39
0.09/0.39
(c)
Y Y
we have
Y 1 3 1
(a) Pr (Y 3) = Pr
= (1) = 0.8413.
2
2
(b)
40 50 Y 50 52 50
Pr (40 Y 52) = Pr
5
5
5
= (0.4) (2) = (0.4) [1 (2)]
= 0.6554 1 + 0.9772 = 0.6326.
(d)
65 Y 5 85
Pr (6 Y 8) = Pr
2
2
2
= (2.1213) (0.7071)
= 0.9831 0.7602 = 0.2229.
E (Y Y ) 4
4
Y
E ( S |X = 0) = 0; E ( S 2 |X = 0) = 100, E ( S 3 |X = 0) = 0, E ( S 4 |X = 0) = 3 1002.
Similarly,
E (S|X = 1) = 0; E (S 2 |X = 1) = 1, E ( S 3|X = 1) = 0, E ( S 4 |X = 1) = 3.
From the large of iterated expectations
E ( S ) = E (S |X = 0) Pr (X = 0) + E (S |X = 1) Pr( X = 1) = 0
E (S 2 ) = E (S 2 |X = 0) Pr (X = 0) + E (S 2 |X = 1) Pr( X = 1) = 100 0.01 + 1 0.99 = 1.99
E (S 3 ) = E (S 3 |X = 0) Pr (X = 0) + E (S 3|X = 1) Pr( X = 1) = 0
E ( S 4 ) = E ( S 4 |X = 0) Pr (X = 0) + E ( S 4 |X = 1) Pr( X = 1)
= 3 1002 0.01 + 3 1 0.99 = 302.97
2.14. The central limit theorem suggests that when the sample size (n) is large, the
2
43
(a) n = 100, Y2 = nY = 100
= 0.43, and
(1.525) = 0.9364.
0.43
0.43
43
(b) n = 165, Y2 = nY = 165
= 0.2606, and
Y 100 98 100
Pr (Y > 98) = 1 Pr (Y 98) = 1 Pr
0.2606
0.2606
1 (3.9178) = (3.9178) = 1.000 (rounded to four decimal places).
43
(c) n = 64, Y2 = 64Y = 64
= 0.6719, and
0
.
6719
0
.
6719
0.6719
2.15. (a)
9.6 10 Y 10 10.4 10
Pr (9.6 Y 10.4) = Pr
4/n
4/n
4/n
10.4 10
9.6 10
= Pr
Z
4/n
4/n
10.4 10
9.6 10
(i) n = 20; Pr
Z
= Pr (0.89 Z 0.89) = 0.63
4/n
4/n
10.4 10
9.6 10
(ii) n = 100; Pr
Z
= Pr(2.00 Z 2.00) = 0.954
4/n
4/n
10.4 10
9.6 10
(iii)n = 1000; Pr
Z
= Pr(6.32 Z 6.32) = 1.000
4/n
4/n
(b)
c
Y 10
c
Pr (10 c Y 10 + c) = Pr
4/n
4/n
4/n
c
c
= Pr
Z
.
4/n
4/n
As n get large
c
gets large, and the probability converges to 1.
4/n
(c) This follows from (b) and the definition of convergence in probability given in
Key Concept 2.6.
2.16. There are several ways to do this. Here is one way. Generate n draws of Y, Y1, Y2,
Yn. Let Xi = 1 if Yi < 3.6, otherwise set Xi = 0. Notice that Xi is a Bernoulli random
variables with X = Pr(X = 1) = Pr(Y < 3.6). Compute X . Because X converges in
probability to X = Pr(X = 1) = Pr(Y < 3.6), X will be an accurate approximation if n
is large.
0.6124 = 0.27
= Pr
0.24/n
0.24/n
0.24/n
(ii) P( Y 0.37) = Pr
1.22 = 0.11
= Pr
0.24/n
0.24/n
0.24/n
0.390.4
0.24/n
9220.
Y2 = E (Y Y )
10
(b) (i) E (Y ) = Y = $1000, Y2 = nY = 1.9100
= 1.9 105.
7
5
1.9 105
1.9 10
1 (2.2942) = 1 0.9891 = 0.0109.
2.19. (a)
l
Pr (Y = y j ) = Pr ( X = xi , Y = y j )
i =1
l
= Pr (Y = y j | X = xi )Pr ( X = xi )
i =1
(b)
k
j =1
j =1
i =1
E (Y ) = y j Pr (Y = y j ) = y j Pr (Y = y j |X = xi ) Pr ( X = xi )
k
i =1 j =1
l
yj Pr (Y = yj |X = xi ) Pr ( X = xi )
= E (Y | X = xi )Pr ( X = xi ).
i =1
Pr (X = xi , Y = yj ) = Pr (X = xi )Pr (Y = y j ),
so
XY = E[( X X )(Y Y )]
l
= ( xi X )( y j Y ) Pr ( X = xi , Y = y j )
i =1 j =1
l
= ( xi X )( y j Y ) Pr ( X = xi ) Pr (Y = y j )
i =1 j =1
l
k
= ( xi X ) Pr ( X = xi ) ( yj Y ) Pr (Y = yj
i =1
j =1
= E ( X X ) E (Y Y ) = 0 0 = 0,
cor (X , Y ) =
XY
0
=
= 0.
XY XY
2.20. (a) Pr (Y = yi ) = Pr (Y = yi | X = xj , Z = zh ) Pr (X = xj , Z = zh )
j =1 h =1
(b)
k
E (Y ) = yi Pr (Y = yi ) Pr (Y = yi )
i =1
k
= yi Pr (Y = yi | X = xj , Z = zh ) Pr (X = xj , Z = zh )
i =1
j =1 h =1
l
m
k
= yi Pr (Y = yi | X = xj , Z = zh ) Pr (X = xj , Z = zh )
j =1 h =1 i =1
= E (Y | X = xj , Z = zh ) Pr (X = xj , Z = zh )
j =1 h =1
where the first line in the definition of the mean, the second uses (a), the third is a
rearrangement, and the final line uses the definition of the conditional
expectation.
2. 21.
(a)
E ( X )3 = E[( X )2 ( X )] = E[ X 3 2 X 2 + X 2 X 2 + 2 X 2 3 ]
= E ( X 3 ) 3E ( X 2 ) + 3E ( X ) 2 3 = E ( X 3 ) 3E ( X 2 ) E ( X ) + 3E ( X )[ E ( X )]2 [ E ( X )]3
= E ( X 3 ) 3E ( X 2 ) E ( X ) + 2 E ( X ) 3
(b)
E ( X )4 = E[( X 3 3 X 2 + 3 X 2 3 )( X )]
= E[ X 4 3 X 3 + 3 X 2 2 X 3 X 3 + 3 X 2 2 3 X 3 + 4 ]
= E ( X 4 ) 4E ( X 3 ) E ( X ) + 6E( X 2 ) E ( X )2 4E( X ) E( X )3 + E( X ) 4
= E ( X 4 ) 4[ E ( X )][ E ( X 3 )] + 6[ E ( X )]2[ E ( X 2 )] 3[ E ( X )]4
= w 0.08 + (1 w) 0.05
2 = w2 0.072 + (1 w)2 0.042 + 2 w (1 w) [0.07 0.04 0.25]
where 0.07 0.04 0.25 = Cov ( Rs , Rb ) follows from the definition of the correlation
between Rs and Rb.
d 2
= 2w .072 2(1 w) 0.042 + (2 4w) [0.07 0.04 0.25]
dw
= 0.0102w 0.0018
Solving for w yields w = 18 /102 = 0.18. (Notice that the second derivative is
positive, so that this is the global minimum.) With w = 0.18, R = .038.
2. 23. X and Z are two independently distributed standard normal random variables, so
X = Z = 0, X2 = Z2 = 1, XZ = 0.
(a) Because of the independence between X and Z , Pr ( Z = z| X = x) = Pr ( Z = z ),
and E ( Z |X ) = E ( Z ) = 0. Thus
E (Y| X ) = E ( X 2 + Z| X ) = E ( X 2| X ) + E (Z |X ) = X 2 + 0 = X 2 .
(b) E ( X 2 ) = X2 + X2 = 1, and Y = E ( X 2 + Z ) = E ( X 2 ) + Z = 1 + 0 = 1.
E ( XY ) = E ( X 3 ) + E (ZX ) = 0.
(d)
XY
0
=
= 0.
XY XY
(c) E (W ) = E
i =1
Yi 2
= E
i =1
Yi 2
= n.
(d) Write
V=
Y1
in=2 Yi2
n 1
Y1 /
in=2 (Y / )2
n 1
which follows from dividing the numerator and denominator by . Y1/ ~ N(0,1),
n
n
i=2 (Yi / )2 ~ n21 , and Y1/ and i=2 (Yi / )2 are independent. The result then
follows from the definition of the t distribution.
ax
2.25. (a)
i =1
(b)
n
(x + y ) = (x + y
i =1
+ x2 + y2 + L xn + yn )
= ( x1 + x2 + L xn ) + ( y1 + y2 + L yn )
n
i =1
i =1
= xi + yi
(c)
a = (a + a + a + L
+ a ) = na
i =1
(d)
n
i =1
i =1
i =1
i =1
i =1
i =1
i =1
cov(Yi , Y j )
Y Y
i
cov(Yi , Y j )
Y Y
cov(Yi , Y j )
Y2
uses the definition of correlation, the second uses the fact that Yi and Yj have the same
variance (and standard deviation), the third equality uses the definition of standard
deviation, and the fourth uses the correlation given in the problem. Solving for
cov(Yi, Yj) from the last equality gives the desired result.
1
1
1
1
(b) Y = Y1 + Y2 , so that E( Y ) = E (Y )1 + E (Y2 ) = Y
2
2
2
2
var( Y ) =
(c) Y =
2 Y2
1
1
2
var(Y1 ) + var(Y2 ) + cov(Y1 , Y2 ) = Y +
4
4
4
2
2
1 n
1 n
1 n
Y
E
(
Y
)
=
E
(
Y
)
=
Y = Y
,
so
that
i
i n
n i =1
n i =1
i =1
1 n
var(Y ) = var Yi
n i =1
1 n
2
= 2 var(Yi ) + 2
n i =1
n
=
1
n2
i =1
2
Y
2
n2
n 1
n 1
cov(Y , Y )
i =1 j =i +1
n
i =1 j =i +1
2
Y
n(n 1)
Y2
2
n
n
2
1
= Y + 1 Y2
n n
=
2
Y
n 1
a = a(1 + 2 + 3 + L
i =1 j =i +1
+ n 1) =
an(n 1)
for any
2
variable a.
(d) When n is large
Y2
n
0 and
1
0 , and the result follows from (c).
n
2.27
(a) E(W) = E[E(W|Z) ] = E[E(X X! )|Z] = E[ E(X|Z) E(X|Z) ] = 0.
(c) Using the hint: V = W h(Z), so that E(V2) = E(W2) + E[h(Z)2] 2E[Wh(Z)].
Using an argument like that in (b), E[Wh(Z)] = 0. Thus, E(V2) = E(W2) +
E[h(Z)2], and the result follows by recognizing that E[h(Z)2] 0 because h(z)2 0
for any value of z.