Financial Risk Manager Part 1

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Assume you're a financial risk manager at an investment management firm where you're given the task to estimate the dispersion of a specific equity price around its forecasted value. As a financial risk manager, calculate the variance of equity value using the data provided in the following table.

Probability	Equity Value
0.33	$62.15
0.39	$60.75
0.28	$63

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TTanishq

0.87

0.93

0.75

0.78

Explanation:

To calculate the variance of the equity value, we use the formula:

$\text{Var}(X) = E(X^2) - [E(X)]^2$

Step 1: Calculate Expected Value E(X) $E(X) = 0.33 \times 62.15 + 0.39 \times 60.75 + 0.28 \times 63.0 = 61.842$

Step 2: Calculate E(X²) $E(X^2) = 0.33 \times 62.15^2 + 0.39 \times 60.75^2 + 0.28 \times 63.0^2 = 3,825.3048$

Step 3: Calculate Variance $\text{Var}(X) = 3,825.3048 - 61.842^2 = 0.8718$

The variance is approximately 0.87, which matches option A.

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