Mini Case Consider a portfolio consisting of N=500 assets with equal credit ratings. Assume that for every asset i = {1,. N} the notional is 10,000 USD, the EAD is equal to 100%, PD; 2%, LGD;=30%, i € {1,..., N} and LGDs are deterministic. Defaults are assumed to be statistically independent. Derive the expected value and standard deviation of the portfolio loss. ...

Q4. Assume that daily evaporation rates (E) have a uniform distribution with a = 0 and b = 0.35 in/day. Determine the following probabilities: (a) P(E > 0.1); (b) P(E < 0.22); and (c) P(E = 0.2).

A survey is conducted on 700 Californians older than 30 years of age. The study wants to obtain inference on the relationship between years of education and yearly income in dollars. The response variable is income in dollars and the explanatory variable is years of education. A simple linear regression model is fit, and the output from R is below: Im(formula = Income ~ Education, data = CA) Coefficients: Estimate Std. Error t value Pr(>|t|) (Intercept) 25200.25 1488.94 16.93 3.08e-10 *** Education 2905.35 112.61 25.80 1.49e-12 *** Residual standard error: 32400 on 698 degrees of freedom Multiple R-squared: 0.7602

A company manager plans to purchase a machine. The company requires a high quality machine. The manager is currently considering two companies that supply this machine. The machine from company A can produce approximately1050 units in average per day, but the standard deviation of this machine is about 250 units per day; while the machine from company B can produce approximately 900 units in average per day, but the standard deviation of this machine is about 100 units per day. Both of these two companies guarantee at least 10 years life. In addition, both prices are similar although machine A is a little bit higher. Price is not the main concern for the manager because both prices are under their budget. However, the manager cannot decide which machine should be purchased, because he is not sure what test he needs to conduct. Can you recommend the manager what test the manager should conduct? Should the manager conduct the test about the difference between two population means or the…

Chains "A" and "B" are made of the same steel. "A" consists of three links and "B" consists of six links, each link having a normal distribution function of the resisting strength with a mean of 60,000 psi and standard deviation of 5,000 psi. Determine which chain is generally weaker (from a probabilistic point of view) by plotting the probability distribution functions of their resisting strengths on the same diagram.

In finance, one example of a derivative is a financial asset whose value is determined (derived) from a bundle of various assets, such as mortgages. Suppose a randomly selected mortgage in a certain bundle has a probability of 0.06 of default. (a) What is the probability that a randomly selected mortgage will not default? (b) What is the probability that four randomly selected mortgages will not default assuming the likelihood any one mortgage being paid off is independent of the others? Note: A derivative might be an investment that only pays when all four mortgages do not default. (c) What is the probability that the derivative from part (b) becomes worthless? That is, at least one of the mortgages defaults. (a) The probability is (Type an integer or a decimal. Do not round.)

Cholesterol is a fatty substance that is an important part of the outer lining (membrane) of cells in the body of animals. Suppose that the mean and standard deviation for a population of individuals are 180 mg/dl and 20 mg/dl, respectively. Samples are obtained from 25 individuals, and these are independent. (a) What is the probability that the average of the 25 measurements exceeds 185 mg/dl? (b) Determine symmetric limits around 180 such that the probability that the sample average is within the limits equals 0.95.