Financial Risk Manager Part 1

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As a research analyst, you're analyzing the probability that the prices of copper will be set below $44/kg after the upcoming government elections. Suppose that the prices of copper are uniformly distributed with a floor at$ 38/kg and a ceiling at $54/kg imposed by the government, then what is the probability that the prices of copper will be set below$ 44/kg?

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TTanishq

0.815

0.625

0.375

0.429

Explanation:

Explanation

Since the government has set a floor of $38/kg (a or the lower boundary) and the ceiling of$ 54/kg (b or the upper boundary).

Thus, n = 54 – 38 = 16

The possible outcomes (prices) of copper that fall below $44 is$ 44 – $38 =$ 6.

Therefore, the probability that the prices of copper will be set under $44 is:

\frac{(X - a)}{(b - a)} = \frac{(44 - 38)}{(54 - 38)} = 0.375

This calculation uses the uniform distribution probability formula where:

Lower bound (a) = $38/kg
Upper bound (b) = $54/kg
Target value (X) = $44/kg

The probability is calculated as the ratio of the favorable range (from $38 to$ 44) to the total range (from $38 to$ 54).

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