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First of, I apologize for the vague title, I didn't know how to summarize this issue.
Suppose that the interest rate obtained in month i is a random variable
Ri with the uniform distribution on [0.01, 0.03], where R1,R2, . . . are independent.
A capital of 1 unit grows to 'The product over i, from i = 1 to n' of (1 + Ri) units in months 1, . . . , n.
a: Compute the expected capital after 12 months in an account that starts with
1 unit. (This I think I did right)
b: Compute the variance of the capital after 12 months in an account that starts
with 1 unit. (This is an issue)
c: Now suppose that a random client invests 10 units and leaves the money in the account
for N ~ Poisson(12) months, where N,R1,R2, . . . are independent random
variables.
Compute the expected capital at the time of withdrawal of this client.
(Also an issue, I think)
The expectation value of the product of a random variable = the product of the expectation value of the random variable
Also, the expectation value of the sum of random variables = the sum of the expectation values of the random variables
And the variance is the expectation value of (the random variable)² - the mean²
Also, the expectation value for the uniform distribution is just the average of the boundaries, and of the poisson distribution it is the parameter.
Alright, so for question A. What I am after is the expectation value of the product (starting from i = 1 to 12) of (1+Ri), so using the rule this is the product (from i = 1 to 12) of the expectation value of (1+Ri), which is the product of (the expectation value of 1) + (the expectation value of Ri), so it is (1+0.02)^12.
I apologize if this is rather vague, but I hope it is clear what I mean?
For question B, the variance. Well, there sadly isn't such a product rule for the variance, so I'll probably have to use the 'original' definition, somehow. However, I don't really see what to do. Do I take the product (starting from i = 1 to 12) of (1+Ri) as my random variable, and then square that, and compute it's expectation value? If so, how can I do that?
For question C, I am a bit puzzled. Seeing it first I thought of the conditional expectation value, but that doesn't work, as the Poisson distribution is discrete and the uniform distribution is continuous. So clearly something else has to be going on. However, the expectation value of 1 unit of currency after 12 months I know from A. The expectation value of poisson(12) is also just 12, so is it just the answer to A, multiplied by 10? Seems to simple.
Thank you in advance,
Verdict
Homework Statement
Suppose that the interest rate obtained in month i is a random variable
Ri with the uniform distribution on [0.01, 0.03], where R1,R2, . . . are independent.
A capital of 1 unit grows to 'The product over i, from i = 1 to n' of (1 + Ri) units in months 1, . . . , n.
a: Compute the expected capital after 12 months in an account that starts with
1 unit. (This I think I did right)
b: Compute the variance of the capital after 12 months in an account that starts
with 1 unit. (This is an issue)
c: Now suppose that a random client invests 10 units and leaves the money in the account
for N ~ Poisson(12) months, where N,R1,R2, . . . are independent random
variables.
Compute the expected capital at the time of withdrawal of this client.
(Also an issue, I think)
Homework Equations
The expectation value of the product of a random variable = the product of the expectation value of the random variable
Also, the expectation value of the sum of random variables = the sum of the expectation values of the random variables
And the variance is the expectation value of (the random variable)² - the mean²
Also, the expectation value for the uniform distribution is just the average of the boundaries, and of the poisson distribution it is the parameter.
The Attempt at a Solution
Alright, so for question A. What I am after is the expectation value of the product (starting from i = 1 to 12) of (1+Ri), so using the rule this is the product (from i = 1 to 12) of the expectation value of (1+Ri), which is the product of (the expectation value of 1) + (the expectation value of Ri), so it is (1+0.02)^12.
I apologize if this is rather vague, but I hope it is clear what I mean?
For question B, the variance. Well, there sadly isn't such a product rule for the variance, so I'll probably have to use the 'original' definition, somehow. However, I don't really see what to do. Do I take the product (starting from i = 1 to 12) of (1+Ri) as my random variable, and then square that, and compute it's expectation value? If so, how can I do that?
For question C, I am a bit puzzled. Seeing it first I thought of the conditional expectation value, but that doesn't work, as the Poisson distribution is discrete and the uniform distribution is continuous. So clearly something else has to be going on. However, the expectation value of 1 unit of currency after 12 months I know from A. The expectation value of poisson(12) is also just 12, so is it just the answer to A, multiplied by 10? Seems to simple.
Thank you in advance,
Verdict