Ultimate access to all questions.
Answer-first summary for fast verification
Answer: 0.87
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.
Author: Tanishq Prabhu
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 |
A
0.87
B
0.93
C
0.75
D
0.78
No comments yet.