FRM Part I · FRM Exam Part I · Fundamentals of Probability
X has E[X] = 4 and E[X^2] = 25. What is Var(X)?
Variance equals the second moment minus the square of the mean: 25 minus 16, which is 9. The mean must be squared before subtracting; subtracting the mean itself would give an incorrect 21.
- A9Correct
- B21
- C29
- D5
Explanation
Var(X) = E[X^2] - (E[X])^2 = 25 - 16 = 9. The 21 figure comes from subtracting... 25 - 4 = 21, forgetting to square the mean. 29 adds instead of subtracts.
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