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.
Ultimate access to all questions.
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.
A
2
B
1.5
C
1.37
D
1.2
No comments yet.