CFA Practice Question

CFA Practice Question

There are two possible future states, 1 and 2. The values of two random variables in the two states, and the probabilities of the two states are given in the table below.

State | Probability | Value of X | Value of Y
1 | 65% | 15 | 20
2 | 35% | 30 | 10

What is the value of (Exp(X)2 - Exp(Y)2
A. 319.8125
B. 166.25
C. 137.8125
Explanation: Calculate Exp(X) and Exp(Y) first by weighting values by probability. Then calculate (Exp(X)2 - Exp(Y)2

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