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A stock analyst assigns the following probability distribution to the possible earnings per share (eps) of...

A stock analyst assigns the following probability distribution to the possible earnings per share (eps) of a company: he believes there is a probability of 0.24 that eps will be 1.07, a probability of 0.38 that eps will be 1.34, and otherwise eps will be 1.56. What is the expected value of the eps? (please express your answer using 2 decimal places)

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Answer #1

Expected value of eps =

0.24*1.07 + 0.38*1.34 + (1-0.24-0.38)*1.56

= 1.3588.

= 1.36 ( correct to 2 decimals)

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