There are two houses with almost identical characteristics available for investment in two different neighborhoods with drastically different demographic composition. The anticipated gain in value when the houses are sold in 10 years has the following probability distribution:
Returns
Probability
Neighborhood A
Neighborhood B
.25 -22,500
30,500
.40 10,000
25,000
.35 40,500
10,500
a) What is the expected value gain for the house in neighborhood A? Show or explain how you obtain your answer. (2 pts.)
b) What is the expected value gain for the house in neighborhood B? Show or explain how you obtain your answer. (2 pts.)
c) What is the variance of the gain in value for the house in neighborhood A? Show or explain how you obtain your answer. (2 pts.)
d) What is the variance of the gain in value for the house in neighborhood B? Show or explain how you obtain your answer. (2 pts.)
e) What is the standard deviation of the value gain for the house in neighborhood A? Show or explain how you obtain your answer. (2 pts.)
f) What is the standard deviation of the value gain for the house in neighborhood B? Show or explain how you obtain your answer. (2 pts.)
g) What is the covariance of the two houses? Show or explain how you obtain your answer. (2 pts.)
h) If you can invest 70
i) If you can invest 70
