2018 October 30,
Carleton College, Joshua R. Davis
A. Let X and Y be IID Expo(λ) random variables. Find the CDF and PDF for Z = Y / X. (We started a problem like this in class.)
B. In class we discussed the overall rate of return from a portfolio of financial assets. Assuming that the rates of return from the individual assets were uncorrelated, we got one answer for the variance of the overall rate of return. My question for you now is: How much greater or less could the variance be, if the rates of return were correlated? (Hint: You might want to review the definition and basic properties of the correlation Corr(Ri, Rj). Also, you might want to review the R file investment.R.)
C. Section 7.8 Exercise 21.