Security Analysts that have evaluated Concordia Corporation, have determined that there is a 15% chance that the firm will generate earnings per share of $2.40; a 60% probability that the firm will generate earnings per share of $3.10; and a 25% probability that the firm will generate earnings per share of $3.80. What are the expected earnings per share for Concordia Corporation? (Round off to the nearest $0.01)
A) $3.10
B) $3.17
C) $2.75
D) $2.91

Question

Quizplus · Accepted Answer

To calculate the expected earnings per share, we multiply the probability of each possible outcome by its respective earnings per share and then sum them up. 
Expected earnings per share = (0.15 x $2.40) + (0.60 x $3.10) + (0.25 x $3.80) = $0.36 + $1.86 + $0.95 = $3.17 
Therefore, the best choice is B, with an expected earnings per share of $3.17.

Security Analysts That Have Evaluated Concordia Corporation, Have Determined That