I've been doing the PBOR for Chapter 3. In some questions (Question 3, part (iv): Risk-averse and risk-seeking, for example) we are asked to, say, 'calculate the probability of each asset yielding a return within each increment'. However, the answer multiplies the increment with the probability mass function. I don't understand why this must be done. Thanks and best regards,
Hi. Actually, it's the probability density function which is being multiplied by the width of the increment - this produces the probability mass. The comment in the column heading says: "To calculate the probability of obtaining a return within each increment, we have taken the probability density (PDF) and multiplied by the width of the increment (h)." Hope that helps.
