Assignment2

(To be submitted on 10th August, 2017 before 3.00 p.m.)

1. Show that Var(Y)=E(Var(Y|X)+Var(E(Y|X).

2. Show that for a normal distribution the mean is equal to the median.

3. Let X be a continuous random variable with pdf () and cdf (). Show that the

function below is the pdf of X.

()/(1 (0 ); 0
() = {
0;

4. Prove the following addition law for expectations established by Betteley (1977):

( ) = () + () ( )

Where ( ) = max(, ) ( ) = min(, ) and X and Y are two random

variables.

[Hint: the result is analogous to P(A U B) law]

5. Using Jensens inequality explain why volatility in housing prices can be serious issue

for banks providing housing loans.