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
A
0.815
B
0.625
C
0.375
D
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:
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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