- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 29. Market-Based Valuation: Price and Enterprise Value Multiples
- Subject 11. Momentum indicators

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**CFA Practice Question**

As of the end of December, 2011, quarterly consensus earnings forecast for a company was $1.25. For the 24 analysts covering the stock, the low forecast is $1.20 and the high is $1.45. The standard deviation of the forecasts is $0.05. If reported earnings come in $0.08 above the mean forecast, what is the earnings surprise for the firm, scaled to reflect the dispersion in analysts' forecasts?

A. 1.6

B. 5

C. 1.064

**Explanation:**$0.08/$0.05 = 1.6

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**User Contributed Comments**
3

User |
Comment |
---|---|

SMcalister |
What is the 1.6 in reference to? How is it measured and does it have units? |

sheridanla |
It has no unit. It tells how many standard deviations the reported earnings are from the forecast earnings. |

daverco |
The formula in the text multiplies the standard deviation in the denominator by the earnings beat. This would make the result 20. Is there a reason not to do this, or is the explanation wrong? |