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Question 1 of 12 Review Answer ON

Done practicing
This question: 01:25 Total: 01:25
Financial Reporting and Analysis (2)
Incorrect

Correct answer Your answer

A
Q. An equity manager conducted a stock screen on
5,000 US stocks that comprise her investment B
universe. The results of the screen are presented in
the table below. C ✕

Percent of Stocks Continue

Criterion Meeting Criterion

Price per share/Sales 35.0

per share < 1.25

Total asset/Equity ≤ 2.5 48.2

Dividends > 0 58.6

Consensus forecast 75.0

earnings per share > 0

Meeting all four criteria 10.8

simultaneously

If all the criteria are independent of each other, the

number of stocks meeting all four criteria would be
closest to:

A. 293.
B. 371.
C. 540.

Solution
B is correct. If the criteria are independent of one
another, the probability that all will occur is the
product of the individual probabilities (multiplication
rule for independent events)—that is 0.35 × 0.482 ×
0.586 × 0.75 = 0.074, or 7.4%, which would
produce 7.4% × 5,000 = 371 meeting the criteria.

A is incorrect because it is the average of the

probabilities × the probability of meeting all 4 ×
5,000:

{[(0 .35 +0 .482 +0 .586 +0 .75) /4] × 0 .108} × 5, 000 =

 C is incorrect because it is the 10.8% probability of 5

simultaneously meeting the requirement in the

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sample: 10.8% × 5,000 = 540.
Question 1 of 12 Review Answer ON

Probability Concepts Learning Outcomes

g. Distinguish between dependent and
independent events
Incorrect
h. Calculate and interpret an unconditional
probability using the total probability rule Correct answer Your answer

A
Financial Statement Analysis:
Applications Learning Outcome B
d. Describe the use of financial statement analysis
in screening for potential equity investments C ✕

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