CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
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Chapter 12, Problem 6PROB
Summary Introduction
Expected EPS:
Estimated income to be earned from a company to its equity shareholders. EPS stands for earnings per share.
Calculate the expected EPS as follows:
Standard deviation is used to measure the risk of the investment.
Calculate the standard deviation as follows:
Coefficient of variation:
It is ratio of standard deviation to expected return.
Calculate the coefficient of variation as follows:
EPS for two firms is given. Calculate the expected value, standard deviation and coefficient of variation for the both the firms
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What are the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution?
Probability Payoff
0.2 19.0%
0.7 9.0
0.1 4.0
Compute the (a) expected return, (b) standard deviation, and (c) coefficient of variation for investments with the following probability distributions:
Probability r/A r/B
0.3 30.0% 5.0%
0.2 10.0 15.0
0.5 -2.0 25.0
Calculate the (a) expected return, (b) standard deviation, and (c) coefficient of variation for an investment with the following probability distribution:
Probability Payoff
0.45 32.0%
0.35 -4.0%
0.20 -20.0%
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