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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 3 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education