Discrete Random Variable
Discrete Random Variables: Homework
Exercise 1
Complete the PDF and answer the questions.
|X |P(X = x) |X(P(X = x) |
|0 |0.3 | |
|1 |0.2 | |
|2 | | |
|3 |0.4 | |
a. Find the probability that X = 2. b. Find the expected value.
Exercise 2
Suppose that you are offered the following “deal.” You roll a die. If you roll a 6, you win $10. If you roll a 4 or 5, you win $5. If you roll a 1, 2, or 3, you pay $6. a. What are you ultimately interested in here (the value of the roll or the money you win)? b. In words, define the Random Variable X. c. List the values that X may take on. d. Construct a PDF. e. Over the long run of playing this game, what are your expected average winnings per game? f. Based on numerical values, should you take the deal? g. Explain your decision in (f) in complete sentences.
Exercise 3
A venture capitalist, willing to invest $1,000,000, has three investments to choose from. The first investment, a software company, has a 10% chance of returning $5,000,000 profit, a 30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The second company, a hardware company, has a 20% chance of returning $3,000,000 profit, a 40% chance of returning $1,000,000 profit, and a 40% chance of losing the million dollars. The third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70% of no profit or loss, and a 20% chance of losing the million dollars.
a. Construct a PDF for each investment. b. Find the expected value for each investment. c. Which is the safest investment? Why do you think so? d. Which is the riskiest investment? Why do you think so? e. Which investment has the highest expected return, on average?
Exercise 4
A theater
Exercise 1
Complete the PDF and answer the questions.
|X |P(X = x) |X(P(X = x) |
|0 |0.3 | |
|1 |0.2 | |
|2 | | |
|3 |0.4 | |
a. Find the probability that X = 2. b. Find the expected value.
Exercise 2
Suppose that you are offered the following “deal.” You roll a die. If you roll a 6, you win $10. If you roll a 4 or 5, you win $5. If you roll a 1, 2, or 3, you pay $6. a. What are you ultimately interested in here (the value of the roll or the money you win)? b. In words, define the Random Variable X. c. List the values that X may take on. d. Construct a PDF. e. Over the long run of playing this game, what are your expected average winnings per game? f. Based on numerical values, should you take the deal? g. Explain your decision in (f) in complete sentences.
Exercise 3
A venture capitalist, willing to invest $1,000,000, has three investments to choose from. The first investment, a software company, has a 10% chance of returning $5,000,000 profit, a 30% chance of returning $1,000,000 profit, and a 60% chance of losing the million dollars. The second company, a hardware company, has a 20% chance of returning $3,000,000 profit, a 40% chance of returning $1,000,000 profit, and a 40% chance of losing the million dollars. The third company, a biotech firm, has a 10% chance of returning $6,000,000 profit, a 70% of no profit or loss, and a 20% chance of losing the million dollars.
a. Construct a PDF for each investment. b. Find the expected value for each investment. c. Which is the safest investment? Why do you think so? d. Which is the riskiest investment? Why do you think so? e. Which investment has the highest expected return, on average?
Exercise 4
A theater