Answer / kangchuentat

ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.10 : (a) 6 V = (1 - 3.5) (1 - 3.5) + (2 - 3.5) (2 - 3.5) + (3 - 3.5) (3 - 3.5) + (4 - 3.5) (4 - 3.5) + (5 - 3.5) (5 - 3.5) + (6 - 3.5) (6 - 3.5) = 17.5. V = 17.5 / 6 = 2.92. (b) Standard deviation = square root of V = (2.92) ^ (0.5) = 1.71. (c) (i) k = 1 / (standard deviation of D*) = 1 / 1.71 = 0.585. (ii) D** (D = 1) = -2.5 / 1.71 = -1.462, D** (D = 2) = -1.5 / 1.71 = -0.877, D** (D = 3) = -0.5 / 1.71 = -0.292, D** (D = 4) = 0.5 / 1.71 = 0.292, D** (D = 5) = 1.5 / 1.71 = 0.877, D** (D = 6) = 2.5 / 1.71 = 1.462. (iii) Sn = 3.5 n + 1.71 nD**. (iv) Expected value of D** = [ D** (D = 1) + D** (D = 2) + D** (D = 3) + D** (D = 4) + D** (D = 5) + D** (D = 6) ] / 6 = (- 1.462 - 0.877 - 0.292 + 0.292 + 0.877 + 1.462) / 6 = 0. The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.

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