Solution

Problem # 4.17 Solution

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2 e
-2 urs
1 2 3 4 5 6 5 4 3

20 o
Expectation is 𝐸 𝑋 + 𝑌 = 2 × +3× +4× +5× +6× +7× +8× +9× + 10 × + 11 ×

D IC
36 36 36 36 36 36 36 36 36
2 1

M LR
+ 12 × =7
36 36

,B X
T1 of
Also, 𝐸 𝑋 = 3.5 and 𝐸 𝑌 = 3.5
Q rt
Pa

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
249
Solution
Problem # 4.17 Solution

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at
M
2 e
-2 urs
1 2 3 4 5 6 5 4 3
Expectation is 𝐸 𝑋 + 𝑌 = 2 × +3× +4× +5× +6× +7× +8× +9× + 10 × + 11 ×

20 o
36 36 36 36 36 36 36 36 36

D IC
2 1
+ 12 × =7

M LR
36 36

,B X
T1 of
Also, 𝐸 𝑋 = 3.5 and 𝐸 𝑌 = 3.5

Q rt
Therefore, 𝐸 𝑋 + 𝑌 = 𝐸 𝑋 + 𝐸 𝑌 = 3.5 + 3.5 = 7
Pa

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
250
Expectation properties

Expectation of a function of random variable

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If 𝑎 and 𝑏 are constants,

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2 e
-2 urs
20 o
Then,

D IC
M LR
,B X
𝐸 𝑋𝑌 = 𝐸 𝑋 ∙ 𝐸[𝑌]
T1 of
Q rt
Pa

If 𝑋 and 𝑌 are independent random variables

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
251
variance

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Expectation gives the weighted average of all the values that the random

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variable can take

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2 e
-2 urs
20 o
However, it does not provide any indication of how are the values spread

D IC
M LR
out

,B X
T1 of
Q rt
Pa
Variance is a measure of the variation or the spread of the values

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
252
variance

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Variance of a random variable is given by:

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M
2 e
-2 urs
𝑉𝑎𝑟 𝑋 = 𝐸[ 𝑋 − 𝜇 2 ]

20 o
D IC
M LR
Where, 𝜇 = 𝐸[𝑋]

,B X
T1 of
Q rt
Pa

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
253
variance

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er
Variance of a random variable is given by:

at
M
2 e
-2 urs
𝑉𝑎𝑟 𝑋 = 𝐸[ 𝑋 − 𝜇 2 ]

20 o
D IC
M LR
,B X
An alternative to this formula also exists

T1 of
Q rt
Pa

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
254
Variance derivation

l
Variance of a random variable is given by:

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M
𝑉𝑎𝑟 𝑋 = 𝐸[ 𝑋 − 𝜇 2 ]

2 e
-2 urs
20 o
D IC
M LR
,B X
T1 of
𝑉𝑎𝑟 𝑋 = 𝑥 − 𝜇 2 𝑝(𝑥)
Q rt
Pa
𝑥

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
255
Variance derivation

Variance of a random variable is given by:

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𝑉𝑎𝑟 𝑋 = 𝐸[ 𝑋 − 𝜇 2 ]

M
2 e
-2 urs
20 o
D IC
𝑉𝑎𝑟 𝑋 = 𝑥 − 𝜇 2 𝑝(𝑥)

M LR
,B X
𝑥

T1 of
Q rt
Pa

𝑉𝑎𝑟 𝑋 = (𝑥 2 − 2𝜇𝑥 + 𝜇2 )𝑝(𝑥)

𝑥

Shounak Basak
10/2/2020
PODS Area, XLRI – Xavier School of Management
256