1. Which of the following types of probability is most likely to be based on logical analysis?
A. An empirical probability
B. A priori probability
C. A subjective probability
2. Professor Irfanullah comes across the following three statements by his students.
- Fatima: Covariance lies within the range -1 < Covariance < +1
- Taimour: The covariance of a stock with itself is equal to its own variance.
- Vishal: The covariance of returns is negative when the return of one asset is above its expected value given that the return on the other asset tends to be below its expected value.
Which of the above students are most likely to be correct?
A. Fatima and Taimour
B. Fatima and Vishal
C. Taimour and Vishal
3. Which of the following equations relating independent random variables is most likely correct?
A. E(XY) = E(X) * E(Y)
B. E(XY) = E(X) + E(Y)
C. E(XY) = E (XY) = E (X) + E (Y) – E (X) E (Y).
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