CFA Practice Question

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CFA Practice Question

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)?

A. -18.35
B. 12.45
C. 18.35
Correct Answer: B

Cov(X, Y) = E(XY) - E(X) x E(Y) = E(XY) - 8.95 x 5 = -32.3 ==> E(XY) = 12.45

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
3) Plug into equation 1) and solve for E(XY)
joe3 I feel stevelaz means how could you get the formula:

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))]
Note: E(constant*R)=constant*E(R)
bc9115a Nice one ThanhBUI
forry9er This is an algebra problem ... not nice
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