A real-estate broker in Washington, DC, purchased 3 two-bedroom houses in a depressed market for a combined cost of $1,000,000. He expects the cleaning and repair costs on each house to average $100,000 with a standard deviation of $15,000. When he sells them, after subtracting taxes and other closing costs, he expects to realize an average of $475,000 per house, with a standard deviation of $12,500.
a) Define your random variables, and use them to create a random variable for the broker’s net profit.
b) Find the mean (expected value) of the net profit.
c) Find the standard deviation of the net profit.
d) Do you have to assume independence for the repairs and sale prices of the houses? Explain.