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Basic Question 5 of 6
Consider the following events:
S2: Fed increases interest rates in the first quarter of 2012
S3: Fed leaves interest rates unchanged in the first quarter of 2012
X: Earnings per share for a certain stock
P(S1)=0.65, P(S2)=0.10, P(S3)=0.25, E(X|S1)=1.75, E(X|S2)=1.50, E(X|S3)=1.67
B. $1.69
C. $1.705
S1: Fed decreases interest rates in the first quarter of 2012
S2: Fed increases interest rates in the first quarter of 2012
S3: Fed leaves interest rates unchanged in the first quarter of 2012
X: Earnings per share for a certain stock
We have the following information:
P(S1)=0.65, P(S2)=0.10, P(S3)=0.25, E(X|S1)=1.75, E(X|S2)=1.50, E(X|S3)=1.67
What is the unconditional expected value of the EPS?
A. $1.64
B. $1.69
C. $1.705
User Contributed Comments 6
| User | Comment |
|---|---|
| mrushdi | good question |
| harpalani | Guys, I'm clueless on this. I thought the given answer is "conditional" expected value and NOT "unconditional" expected value. Can someone pls.share thoughts on this? |
| joywind | @harpalani, the answer is "unconditional" expected value, a sum of those "conditional" expected values under different conditions |
| idzani | Technically by summing the individual E(x)s you are getting the expected value for all circumstances i.e. unconditional |
| choas69 | good explanation idzani |
| Huricane74 | The easiest and fastest way to do this is on the calculator by entering value for X and Y using the [DATA] and [STAT] function. Set up a table to make sure you are entering the values correctly. Toggle down until you get to the function: ΣXY = |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
Learning Outcome Statements
calculate expected values, variances, and standard deviations and demonstrate their application to investment problems
CFA® 2024 Level I Curriculum, Volume 1, Module 4.