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Answer: $1.90.
The correct answer is **C ($1.90)**. The expected dividend per share under the favorable scenario is calculated as follows: 1. **Conditional Expectation**: The expected value of the dividend given the favorable scenario is computed by weighting each possible dividend by its conditional probability: - $2.00 × 0.80 = $1.60 - $1.50 × 0.20 = $0.30 - **Total**: $1.60 + $0.30 = $1.90 2. **Incorrect Answers**: - **A ($1.14)**: Incorrectly multiplies the conditional expectation ($1.90) by the probability of the favorable scenario (0.60). - **B ($1.37)**: Represents the unconditional expected dividend per share, which combines both favorable and unfavorable scenarios. This question tests the understanding of **conditional expectations** and their application in investment analysis, particularly in scenarios modeled using probability trees.
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A tree diagram provides the following data regarding the dividend per share for a company under two scenarios:
$2.00 (80% probability) or $1.50 (20% probability).$0.75 (30% probability) or $0.50 (70% probability).
The expected dividend per share under the favorable scenario is closest to:A
$1.14.
B
$1.37.
C
$1.90.
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