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**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.

1 | 65% | 15 | 20

2 | 35% | 30 | 10

State | Probability | Value of X | Value of Y

1 | 65% | 15 | 20

2 | 35% | 30 | 10

What is the expected value of (X

^{2}- Y^{2})?A. 319.8125

B. 166.25

C. 197.75

**Explanation:**Calculate X

^{2}- Y

^{2}for each state and weight by probability.

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**User Contributed Comments**
1

User |
Comment |
---|---|

ninad123 |
w1*(x1^2-y1^2)+w2*(x2^2-y2^2) -113.75+280 = 166.25 |