RISK ANALYSIS

a. Given the following information, calculate the expected value for FirmC’sEPS.DataforFirms A and B are as follows: E EPSA $5 10, A $3 61, E EPSB $4 20, and B $2 96.

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

b. You are given that C $4 11. Discuss the relative riskiness of the three firms’ earnings.

AppendixLO1