Topic: Probability & Normal Distribution; Regression & Correlation; Asymmetric Information

Aim: Complete Information Asymmetry Calculations. Show working as demonstrated in the lectures. A single numerical answer is NOT sufficient! Pre- requisite: COMPLETE Topics 7 - 9. 1. [5 Marks] (a) For the information asymmetry case, show calculations to determine the selling price and which cars remain in the market. Description Peaches Lemons Buyer's Value $11,200 $9,400 Seller's Value $10,300 $7,500 Proportion 4 3 (b) Comment on the relevance of this example to financial securities. 2. [5 Marks] Suppose that the resting blood pressure of healthy adults is normally distributed with a mean of 75 mm Hg and a standard deviation of 5 mm Hg. (a) What is the probability that a healthy adult would have a resting blood pressure greater than 84 mm Hg? (b) 95% of healthy adults would have a resting blood pressure less than what pressure (in mm Hg)