Risk Analysis
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Risk Analysis:
Given the following information, calculate the expected value for Firm C's EPS. Data for Firms A and B are as follows: E(EPSA) = $5.10, and oA =$3.61; E(EPSB) = $4.20,
You are given that oC = $4.11. Discuss the relative riskiness of the three firms' earnings. You are given that oC = $4.11. Discuss the relative riskiness of the three firm's earnings.
Probability 0.1 0.2 0.4 0.2 0.1
Firm A:EPSA ($1.50) $ 1.80 $ 5.10 $ 8.40 $ 11.70
Firm B: EPSB ( 1.20) 1.50 4.20 6.90 9.60
Firm C: EPSC ( 2.40) 1.35 5.10 8.85 12.60
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Solution Summary
The risk and return are calculated with step by step instructions. A brief risk analysis is also included in the solution.
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Expected EPS from Firm C:
Expected (EPS C) = 0.1 (-2.40) + 0.2 (1.35) + 0.4 (5.10) + 0.2 (8.85) + 0.1 (12.60)
= -0.24 + 0.27 + 2.04 + 1.77 + 1.26
= $ 5.10
Risk of EPS B:
oB = Square Root of [0.1(-1.20-4.20)2+0.2(1.50-4.20) 2+0.4(4.20-4.20) 2+0.2(6.90-4.20) ...
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