Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
The following table presents the probability distribution of the earnings per share (EPS) for a certain company:
| Probability | EPS | Interest rates | Beta |
|---|---|---|---|
| 20% | $1.5 | 21 | 1.15 |
| 10% | $2.0 | 20% | 10% |
| 30% | $1.3 | 20% | 1.25 |
| 40% | $1.2 | 10% |
Compute the expected earnings per share.
Other
Community
NNikitesh
A
2
B
1.5
C
1.37
D
1.2
Explanation:
The expected earnings per share (EPS) is calculated using the formula: E(X) = ΣP(xi)xi
Calculation: = (0.2 * 1.5) + (0.1 * 2.0) + (0.3 * 1.3) + (0.4 * 1.2) = 0.3 + 0.2 + 0.39 + 0.48 = 1.37
Therefore, the expected EPS is $1.37, which corresponds to option C.
Note: The interest rates and beta columns in the table are not needed for this calculation, as we only need the probability and EPS values to compute the expected value.
Comments
Loading comments...