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The rate of return of an asset is the change in price

Applied Statistics and Probability for Engineers | 6th Edition | ISBN: 9781118539712 | Authors: Douglas C. Montgomery, George C. Runger ISBN: 9781118539712 55

Solution for problem 78E Chapter 5.4

Applied Statistics and Probability for Engineers | 6th Edition

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Applied Statistics and Probability for Engineers | 6th Edition | ISBN: 9781118539712 | Authors: Douglas C. Montgomery, George C. Runger

Applied Statistics and Probability for Engineers | 6th Edition

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Problem 78E

The rate of return of an asset is the change in price divided by the initial price (denoted as r ). Suppose that $10,000 is used to purchase shares in three stocks with rates of returns x1 , x2 , x3. Initially, $2500, $3000, and $4500 are allocated to each one, respectively. After one year, the distribution of the rate of return for each is normally distributed with the following parameters:

Step-by-Step Solution:

Step 1 of 4</p>

Let are the rates of returns of three stocks

Here all are following the normal distribution

Then  

         

         

Let Y be the total rate of return after one year

Then

Step 2 of 4</p>

a) We have to find mean and variance of the rate of return after one year

Now

                 

                 =0.12+0.04+0.07

                  =0.23

Variance (Y)=

                 

                 =(0.14)2+(0.02)2+(0.08)2

                  =0.0264

Hence mean=0.23 and variance=0.0264

Step 3 of 4

Chapter 5.4, Problem 78E is Solved
Step 4 of 4

Textbook: Applied Statistics and Probability for Engineers
Edition: 6
Author: Douglas C. Montgomery, George C. Runger
ISBN: 9781118539712

Applied Statistics and Probability for Engineers was written by and is associated to the ISBN: 9781118539712. This full solution covers the following key subjects: price, return, rate, allocated, distributed. This expansive textbook survival guide covers 97 chapters, and 2005 solutions. The answer to “The rate of return of an asset is the change in price divided by the initial price (denoted as r ). Suppose that $10,000 is used to purchase shares in three stocks with rates of returns x1 , x2 , x3. Initially, $2500, $3000, and $4500 are allocated to each one, respectively. After one year, the distribution of the rate of return for each is normally distributed with the following parameters:” is broken down into a number of easy to follow steps, and 71 words. Since the solution to 78E from 5.4 chapter was answered, more than 967 students have viewed the full step-by-step answer. The full step-by-step solution to problem: 78E from chapter: 5.4 was answered by , our top Statistics solution expert on 07/28/17, 07:57AM. This textbook survival guide was created for the textbook: Applied Statistics and Probability for Engineers , edition: 6.

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