CMA Foundation · Fundamentals of Business Mathematics and Statistics · Probability
For a random variable X, E(X) = 8. A Chennai firm's profit in thousands of rupees is Y = 5X - 12. What is E(Y)?
E(Y) is Rs 28 thousand. Expectation is linear, so E(5X minus 12) equals 5 times E(X) minus 12, which is 40 minus 12, giving 28. Ignoring the constant 12 would wrongly give 40.
- ARs 28 thousandCorrect
- BRs 52 thousand
- CRs 40 thousand
- DRs 4 thousand
Explanation
By linearity, E(5X - 12) = 5E(X) - 12 = 40 - 12 = 28. Rs 40 thousand forgets the constant term.
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