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Basic Question 10 of 20
You are one of 8 stock analysts covering EndRun, a pioneer in off-balance-sheet-financing. Seven analysts believe the company is worth $1 million, while you think the firm has a net worth of $1.00. What is the mean absolute deviation of the estimated net worth from the average?
B. $218,749.78
C. $447,058.85
A. $9,117,058.35
B. $218,749.78
C. $447,058.85
User Contributed Comments 11
| User | Comment |
|---|---|
| rinkoo | 7*$1000000 + 1.00 = $7000001 divide 7000001/8 = 875000.13 for 7 analyst they wud differ $1000000-$875000.13 = $124999.87 for 1 analyst = $875000.13-$ 1 = $ 874999.13 7* $ 124999.87 + 1*$ 874999.13 = $ 1749998.20 $1749998.20/8 = $ 218747.78 just making the steps clearer |
| danrow | much better. Thanks |
| olagbami | why we dividing by 8 and not 7? |
| RSmith | Because there are 8 analysts, and this is not the variance (or standard deviation) we are calculating. |
| rohits79 | The net worth of the company will remain 1 million even if seven analyst talks about it, shouldn't we be using 1M + 1 in our calculation instead? |
| cfaajay | Either u or other 7 are doing useless analysis. |
| 2014 | Its simple, Textbook says MAD is always less than or equal to SD. So, SD for this is 353,553 so obvious choice is B |
| johntan1979 | Hidden message in the question... EndRun sounds like? ;) |
| jasonkwk | ENRON!!!!!!!! |
| bwhitele | Explanation makes perfect sense just got stuck on solution for a second as there is a slight typo towards the end. It should read 7*124999.87 + 1*874999.13 = 1749998.2 and then divide that by 8 |
| choas69 | understand the concept then its easy |
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Andrea Schildbach
Learning Outcome Statements
calculate, interpret, and evaluate measures of dispersion to address an investment problem
CFA® 2025 Level I Curriculum, Volume 1, Module 3.