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Basic Question 0 of 10
It is forecasted that the expected EPS for two stocks, X and Y, is $8.95 and $5. The covariance for the earnings per share for the two stocks is -32.3. What is the value for E(XY)?
B. 12.45
C. 18.35
A. -18.35
B. 12.45
C. 18.35
User Contributed Comments 7
| User | Comment |
|---|---|
| stevelaz | Could someone explain this? |
| BayAreaPablo | 1) Cov(X,Y)=E(XY)-E(X)-E(Y) 2) We know: Cov (X,Y)=-32.3 E(X)= 8.95 E(Y)=5 E(XY)=? 3) Plug into equation 1) and solve for E(XY) -32.3=E(XY)-8.95x5 -32.3=E(XY)-44.75 12.45=E(XY) |
| joe3 | I feel stevelaz means how could you get the formula: Cov(X,Y)=E(XY)-E(X)xE(Y) Anybody can help? |
| viannie | Cov => joint probability. So, E(X) * E(Y) but exclude E(XY) .. therefore Cov(X,Y) = E(XY) - E(X)*E(Y) I got it as I recognize the formula as a Joint probability. Someone please confirm though...thanks! |
| ThanhBUI | By definition: Cov(XY)=E[(X-E(X))(Y-E(Y))] =E[XY-YE(X)-XE(Y)+E(X)E(Y)] =E(XY)-E(X)E(Y)-E(Y)E(X)+E(X)E(Y) =E(XY)-E(X)E(Y) Note: E(constant*R)=constant*E(R) |
| bc9115a | Nice one ThanhBUI |
| forry9er | This is an algebra problem ... not nice |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
calculate and interpret the expected value, variance, standard deviation, covariances, and correlations of portfolio returns
CFA® 2024 Level I Curriculum, Volume 1, Module 5.