Answered: The rate of return of an investment, X,…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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The rate of return of an investment, X, follows a normal distribution with mean 0.07 and standard deviation 0.02.

Bob invests $10,000 into an account at time 0 which follows the rate of return given by X. The future value of the account at time t is given by the random variable

where t is the number of years after time 0.

Find the expected future value of the account five years after time zero.

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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