If the variance of a probability distribution was computed to be 3.6, what is the standard deviation?
Answer(s): B
Standard deviation is the square root of the variance.
A price-linked derivative security pays $300 if the oil price over the next year increases by more than 5%, anevent that can happen with a 60% probability. Otherwise, it pays $50. If the expected return on the security is 15%, how much does the security cost?
Answer(s): A
The expected payoff on the security equals 0.6 * 300 + 0.4 * 50 = 200. Since the expected return is 15%, the security must cost 200/1.15 = $173.9
If you buy an item for $500 and agree to pay for it with 36 monthly payments of $22.22, beginning next month, what annual interest rate, compounded monthly, are you being charged?
Answer(s): D
The interest rate returned by the calculator will be the periodic interest rate. It must be multiplied by the number of periods per year to have the correct answer. On the BAII Plus, press 36 N, 500 PV, 22.22+/- PMT, 0 FV, CPT I/Y. Then press x 12 = to see the answer. On the HP12C, press 36 n, 500 PV, 22.22 CHS PMT, 0 FV, i.Then press 12 x to see the answer. Make sure the BAII Plus has the P/Y value set to 1.
The formula for joint probability is given by:
Answer(s): C
A joint probability takes the form of P(AB) = P(A | B) * P(B). Note that this is just a rearranged form of the formula for conditional probability.
What does the coefficient of determination equal if r = 0.89?
Answer(s): E
The coefficient of determination is the r-squared.
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