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The annual return on Portfolio x varies each year being - 2 % with probability 0 . 2 5 , 4 % with probability 0
The annual return on Portfolio varies each year being with probability with
probability and with probability Annual returns on Portfolio are independent
of each other.
The annual return on Portfolio also varies each year as follows: of the annual growth
factor each year is guaranteed to be and the other of the annual growth factor is
lognormally distributed with mean and standard deviation Annual returns on
Portfolio are independent of each other.
a Calculate the mean and standard deviation of the accumulated value of invested in
Portfolio for years.
b Calculate the mean and standard deviation of the accumulated value of invested in
Portfolio for years.
c A man must make a liability payment of in years time. How much should he
invest in Portfolio for the years to be at least sure of meeting this liability
payment.
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