Questions for Chapter 5

Everywhere assume discrete random variables

1. Define the mean of a random variable and linear combination of random variables. Prove the linearity
property of means. How is it related to homogeneity and additivity? How is the expected value related
to the sample mean? Do you know any other mathematical operations that are linear?
2. Considering a pair of variables, give their separate and joint probability distributions and define their
product. Define independence of random variables and prove the multiplicativity property.
3. Define covariance. State and prove properties: linearity, shortcut formula, independence implies
uncorrelatedness, correlation with a constant, symmetry.
4. Define variance. State and prove properties: relation to covariance, variance of a linear combination,
variance of a sum, homogeneity of degree 2, variance of a constant, nonnegativity, characterization of
all variables with vanishing variance, additivity of variance.
5. Give the definition and draw the graph of absolute value. Define standard deviation and prove its
homogeneity. Do you think the triangle inequality σ( X + Y ) ≤ σ( X ) + σ(Y ) is true?
6. State the Cauchy-Schwarz inequality (without proof). Use it to find the range of the correlation
coefficient and interpret the cases ρ( X , Y ) = ±1 . Prove that the correlation coefficient does not
depend on units of measurement.
7. In one table give the statistical and geometric interpretation of various values of the correlation
coefficient.
8. What is the purpose of standardization? Prove
9. Define the Bernoulli variable, find its mean and variance.
10. Define identically distributed variables. How do you justify this definition? Why do identically
distributed variables have identical means and variances? Find the mean and variance of a sum of i.i.d.
variables and of the sample mean. What terminology is used in case of the binomial variable?
11. Find the distribution of the binomial variable.
12. Define the distribution function and state its properties. Relate it to cumulative probabilities.
13. What is the Taylor decomposition? How do you obtain the Poisson distribution from it? Find the
mean and variance of the Poisson distribution.
14. Explain completely the Poisson approximation to the binomial distribution (giving the direct solution
and the Poisson distribution).
15. Explain the two points of view in the portfolio analysis and give two definitions of the portfolio value.
In one case find its mean and in the other prove the main result for the rate of return.
The way we work
I distribute a list of questions like this. The students read the companion at home and in the class. They
work in teams of 5 people. The teams are permanent (for the whole semester). The students discuss the
questions among themselves and ask me questions when necessary. Every three or four classes we have
assessment. I use one of two ways to evaluate the students’ performance.
1. The whole class is divided in two groups (we don’t have many students). I use a die to determine
which group answers Question 1 (then the other group answers Question 2). Suppose it’s Group 1. From
that group I randomly choose the representative who writes the answer on the board (we divide the
board in two parts). Similarly, a randomly chosen student from Group 2 answers Question 2. Both
students have 10-15 minutes. After both of them finish, I grade the answers. The grade received by the
representative becomes the grade of the whole group. This is an important difference between what
Michaelsen recommends and what I do, and this is what forces the students to teach each other. We go
like this through all questions on the list.
2. Each student in the class is randomly given one question from the list to answer in writing. From each
team I randomly choose one answer. The grade for that answer becomes the grade for the whole team.