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Any help would be appreciated (Probability and Stats)

Discussion in 'BBS Hangout' started by Phillyrocket, Sep 21, 2009.

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  1. Phillyrocket

    Phillyrocket Member

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    Okay I'm stumped on these:

    Investor’s daily, a magazine rating stocks and mutual funds, has predicted that stock
    A will have annual return 10% with a standard deviation of 4%, and stock B will have
    annual return 20% with a standard deviation of 10%. They have also calculated that
    the correlation between the return of these stocks is -0.2.

    a) What is the expected annual return on a portfolio that invests 30% in A and 70%
    in B? How about the standard deviation of the portfolio return?

    b) What is the probability that the portfolio will have a negative return?



    Historical data indicates that the starting salary for a new MBA graduate in a leading management consulting firm can be modeled as a normal distribution with mean $100,000 and standard deviation $20,000. Second year salaries increase by 20%. The bonus each year, for the first and following years, can be modeled as a normal distribution with mean $25,000 and standard deviation $5000. Assume that the bonus is independent of the initial salary, and also independent from the annual salary increase. If annual compensation equals salary plus bonus, answer the following questions.

    a) What is the standard deviation of the annual compensation for a new hire?
    b) What is the standard deviation of the annual compensation after completing a year in the firm?


    ANY help would be greatly appreciated!
     

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