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4. (176 attempt) Topte: Stochastic Ordering. The rate of return on Investments A and B can be 2%, 4%, 5%, 6%, 8% or 9%. The
4. (176 attempt) Topte: Stochastic Ordering. The rate of return on Investments A and B can be 2%, 4%, 5%, 6%, 8% or 9%. The probability of the return taking each of these values is shown in the table below: Return Probability for A Probability for B 2% 0.25 0.25 0.5 0.25 0.25 D 0.25 9% 0.25 Let Fa(x) and Fo(x) denote the distribution functions of the rates of return on Investments A and B, respectively. 1. By drawing graphs of FA(x) and Fg(r), or otherwise, determine whether one of the Investments has first order stochastic dominance over the other, and, If so, which one. 2. By calculating; Fa(y) dy and Fo(v) dy or otherwise, determine whether one of the investments has second order stochastic dominance over the other, and, If so, which one
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