{

Y with probabiltiy 1−W

Z= Y + S with probabiltiy WA
TY + S with probabiltiy W (1− A)

We assume that E ( S )=θ and E ( T )=1. Then,

Part (1) ALL DONE

We have found,

E ( Z ) =μ Y +Wθ
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Part (2)
We want to find σ 2z ?

Given,
2
σ z =E ( Z ) −[ E( Z) ]
2 2

Based on the above model, we have

2
σ z =E ( Y ) (1−W ) + E(Y + S) WA+ E (TY +S ) W (1−A )−[ E(Z) ]
2 2 2 2

Please derive the previous formula until you get the highlighted one below

σ z =σ Y +W ( 1− A ) ( σ T σ Y +σ T μ Y ) +W σ S+ W θ −W θ
2 2 2 2 2 2 2 2 2 2