Quiz 21 3.

Suppose that Luu’s current wealth ω is $400 and she faces

the following lottery L. She can earn $500 with probability
πA = 15 , she can earn zero (stay the same) with probability
Set A πB = 35 and she can lose $300 with probability πC = 15 . In
other words, PMF of L is pL (500) = pL (−300) = 51 and
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pL (0) = 35 . Assume Luu’s
√ utility function, defined over
her wealth, is u(w) = 3 w.
Section . . . . . . . . . . . . . . . . . . Is Luu risk averse? (in other words, Is u concave?)
yes
Email ID . . . . . . . . . . . . . . . . . .
What is the expected value of the lottery?
No copying, cheating, collaboration, computers, or cell phones E(L) = 40
are allowed. Answers should be exact unless an approximation
is asked for. All parts will be weighted equally within each Which utility level would Luu get if she received the ex-
problem. pected value of the lottery for sure?
√
u(ω + E(L)) = 3 440
Simplifying expressions: You don’t need to simplify compli-
1 2 1 2 What is Luu’s expected utility from taking the lottery?
cated expressions. For example, you can leave × + ×
4 3 3 5 Eu(ω + L) =
20! 20 3 ∗ 20 = 60
exactly as it is. Likewise for expressions like or
18!2! 18
4. Suppose random variable X has a CDF given below. Se-
Good luck. lect a valid CDF from the following and circle it :

b
Ques 1 2 3 4 5 Total

Score /4 /4 /4 /4 /4 /20

1. Suppose X and Y are two random variables. X can take

values 1 and 3. Y can take values 0 and 1. The following
is the joint probability distribution of X and Y .

X↓Y → 0 1
1 0.1 0.2
3 0.6 0.1

Evaluate the following quantities

pX|Y (3|0) = 6
pY (1) = 0.3 7

19 ρX,Y = 11
E[X|Y = 0] = 7 − 21

2. Let X be a uniformly distributed random variable on (0, 3)

i.e. its density function is
( Now, evaluate the following quantities
1
if 0 < x < 3 Pr(X ≤ 0.3) = 0.15 Pr(X > 0.6) = 0.7
fX (x) = 3
0 otherwise
Pr(|X − 0.5| > 0.1) = 0.9
2
Define random variable Y = X . Set of values Y takes is
an interval of the form (a, b). Find a, b. 5. (a) Let X and Y be independent Bernoulli random vari-
ables with
Range(Y ) = (a, b) = (0, 9) Pr(X = 1) = 12 , Pr(Y = 1) = 23
The distribution of X +Y −XY is Bernoulli(q), where
For y ∈ (a, b), find
q= 5
1
√ 6
fY (y) = 6 y
(b) Suppose X and Y are i.i.d Bernoulli( 12 ) random vari-
E(Y ) = 3 ables. What is the MGF of 3(X + Y )?
 3t 2
V(Y ) = 7.2 M3(X+Y ) (t) = e +1
2
1 Contact: [email protected]
Quiz 22 3. Suppose that Luu’s current wealth ω is $400 and she faces
the following lottery L. She can earn $500 with probability
πA = 15 , she can earn zero (stay the same) with probability
Set B πB = 35 and she can lose $300 with probability πC = 15 . In
other words, PMF of L is pL (500) = pL (−300) = 51 and
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pL (0) = 35 . Assume Luu’s
√ utility function, defined over
her wealth, is u(w) = 4 w.
Section . . . . . . . . . . . . . . . . . . Is Luu risk averse? (in other words, Is u concave?)
yes
Email ID . . . . . . . . . . . . . . . . . .
What is the expected value of the lottery?
No copying, cheating, collaboration, computers, or cell phones E(L) = 40
are allowed. Answers should be exact unless an approximation
is asked for. All parts will be weighted equally within each Which utility level would Luu get if she received the ex-
problem. pected value of the lottery for sure?
√
u(ω + E(L)) = 4 440
Simplifying expressions: You don’t need to simplify compli-
1 2 1 2 What is Luu’s expected utility from taking the lottery?
cated expressions. For example, you can leave × + ×
4 3 3 5 Eu(ω + L) =
20! 20 4 ∗ 20 = 80
exactly as it is. Likewise for expressions like or
18!2! 18
4. Suppose random variable X has a CDF given below. Se-
Good luck. lect a valid CDF from the following and circle it :

b
Ques 1 2 3 4 5 Total

Score /4 /4 /4 /4 /4 /20

1. Suppose X and Y are two random variables. X can take

values 1 and 4. Y can take values 0 and 1. The following
is the joint probability distribution of X and Y .

X↓Y → 0 1
1 0.1 0.2
4 0.6 0.1

Evaluate the following quantities

pX|Y (4|1) = 1
pY (1) = 0.3 3

ρX,Y = 11
E[X|Y = 1] = 2 − 21

2. Let X be a uniformly distributed random variable on (0, 4)

i.e. its density function is
( Now, evaluate the following quantities
1
if 0 < x < 4 Pr(X ≤ 0.4) = 0.2 Pr(X > 0.8) = 0.6
fX (x) = 4
0 otherwise
Pr(|X − 0.5| > 0.2) = 0.8
2
Define random variable Y = X . Set of values Y takes is
an interval of the form (a, b). Find a, b. 5. (a) Let X and Y be independent Bernoulli random vari-
ables with
Range(Y ) = (a, b) = (0, 16) Pr(X = 1) = 12 , Pr(Y = 1) = 34
The distribution of X +Y −XY is Bernoulli(q), where
For y ∈ (a, b), find
q= 7
1
√ 8
fY (y) = 8 y
(b) Suppose X and Y are i.i.d Bernoulli( 12 ) random vari-
16
E(Y ) = 3 ables. What is the MGF of 4(X + Y )?
 4t 2
256 16 2 1024


V(Y ) = 5 − 3 = 45
M4(X+Y ) (t) = e +1
2
2 Contact: [email protected]
Quiz 23 3. Suppose that Luu’s current wealth ω is $400 and she faces
the following lottery L. She can earn $500 with probability
πA = 15 , she can earn zero (stay the same) with probability
Set C πB = 35 and she can lose $300 with probability πC = 15 . In
other words, PMF of L is pL (500) = pL (−300) = 51 and
Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pL (0) = 35 . Assume Luu’s
√ utility function, defined over
her wealth, is u(w) = 5 w.
Section . . . . . . . . . . . . . . . . . . Is Luu risk averse? (in other words, Is u concave?)
yes
Email ID . . . . . . . . . . . . . . . . . .
What is the expected value of the lottery?
No copying, cheating, collaboration, computers, or cell phones E(L) = 40
are allowed. Answers should be exact unless an approximation
is asked for. All parts will be weighted equally within each Which utility level would Luu get if she received the ex-
problem. pected value of the lottery for sure?
√
u(ω + E(L)) = 5 440
Simplifying expressions: You don’t need to simplify compli-
1 2 1 2 What is Luu’s expected utility from taking the lottery?
cated expressions. For example, you can leave × + ×
4 3 3 5 Eu(ω + L) =
20! 20 5 ∗ 20 = 100
exactly as it is. Likewise for expressions like or
18!2! 18
4. Suppose random variable X has a CDF given below. Se-
Good luck. lect a valid CDF from the following and circle it :

b
Ques 1 2 3 4 5 Total

Score /4 /4 /4 /4 /4 /20

1. Suppose X and Y are two random variables. X can take

values 1 and 5. Y can take values 0 and 1. The following
is the joint probability distribution of X and Y .

X↓Y → 0 1
1 0.1 0.2
5 0.6 0.1

Evaluate the following quantities

pX|Y (5|0) = 6
pY (0) = 0.7 7

31 ρX,Y = 11
E[X|Y = 0] = 7 − 21

2. Let X be a uniformly distributed random variable on (0, 5)

i.e. its density function is
( Now, evaluate the following quantities
1
if 0 < x < 5 Pr(X ≤ 0.5) = 0.25 Pr(X > 1) = 0.5
fX (x) = 5
0 otherwise
Pr(|X − 0.5| > 0.3) = 0.7
2
Define random variable Y = X . Set of values Y takes is
an interval of the form (a, b). Find a, b. 5. (a) Let X and Y be independent Bernoulli random vari-
ables with
Range(Y ) = (a, b) = (0, 25) Pr(X = 1) = 12 , Pr(Y = 1) = 45
The distribution of X +Y −XY is Bernoulli(q), where
For y ∈ (a, b), find
q= 9
1√ 10 = 0.9
fY (y) = 10 y
(b) Suppose X and Y are i.i.d Bernoulli( 12 ) random vari-
25
E(Y ) = 3 ables. What is the MGF of 5(X + Y )?
 5t 2
25 2 500


V(Y ) = 125 − 3 = 9 = 55.56 M5(X+Y ) (t) = e +1
2
3 Contact: [email protected]