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Answer: 1.37
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.
Author: Nikitesh Somanthe
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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