Unfortunately, it cannot tell the financial manager which of the three possible outcomes will occur….

The financial manager of the Variable Corporation has looked into the department’s crystal ball and estimated the earnings per share for Variable under three possible outcomes. This crystal ball is a bit limited, for it can only make projections regarding the earnings per share and the probability that each will occur. Unfortunately, it cannot tell the financial manager which of the three possible outcomes will occur. The data provided by the crystal ball indicates:

Economic Environment

Probability

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Earnings per Share

Good

50%

$10.00

OK

20%

$5.00

Bad

30%

$1.00

Help the financial manager assess this data by calculating the expected earnings per share and the standard deviation of earnings per share for Variable Corporation.

 

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