Consider an investment to an asset in a region with opportunity of a small war. The earnings per share (EPS) also depend of oil prices. In case of High oil prices small war will happen with probability 5% and earnings will be $0.5 per share. If small war does not occur under High oil prices earnings per share will be $1.4 In case of Low oil prices small war will happen with probability 40% and earnings will be $0.5 per share. If small war does not occur under High oil prices earnings per share will be $1.3 Is is evaluated from historical data that oil prices will be High with probability 20% Find Total Variance of EPS hint: find marginal probabilities of each EPS value: 0.5, 1.3 and 1.4; then use these probabilities and values to find usual unconditional variance

Consider an investment to an asset in a region with opportunity of a small war. The earnings per share (EPS) also depend of oil prices. In case of High oil prices small war will happen with probability 5% and earnings will be $0.5 per share. If small war does not occur under High oil prices earnings per share will be $1.4 In case of Low oil prices small war will happen with probability 40% and earnings will be $0.5 per share. If small war does not occur under High oil prices earnings per share will be $1.3 Is is evaluated from historical data that oil prices will be High with probability 20% Find Total Variance of EPS hint: find marginal probabilities of each EPS value: 0.5, 1.3 and 1.4; then use these probabilities and values to find usual unconditional variance

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP3: Part 3: Exchange Rate Risk Management

Section: Chapter Questions

Problem 4Q

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