Independent solution

How to solve this Variance question

Setup

Setup

Let X be the original cost and Y=1.2X the cost after the uniform 20% increase. The original variance is 260.

Y=1.2XY=1.2X
Var(X)=260\operatorname{Var}(X)=260

Model

Model

Multiplying a random variable by a constant multiplies its variance by the square of that constant; no additive term is present here.

Var(Y)=(1.2)2Var(X)\operatorname{Var}(Y)=(1.2)^2\operatorname{Var}(X)

Compute

Compute

Square the scale factor before applying it: 1.2 squared is 1.44, and 1.44 × 260 is 374.4.

Var(Y)=1.44(260)=374.4\operatorname{Var}(Y)=1.44(260)=374.4

Answer

Answer

The transformed variance rounds to 374, corresponding to choice E.

374(E)\boxed{374\quad\text{(E)}}