# Question

An analyst forecasts corporate earnings, and her record is evaluated by comparing actual earnings with predicted earnings. Define the following:

actual earnings = predicted earnings + forecast error.

If the predicted earnings and forecast error are independent of each other, show that the variance of predicted earnings is less than the variance of actual earnings.

actual earnings = predicted earnings + forecast error.

If the predicted earnings and forecast error are independent of each other, show that the variance of predicted earnings is less than the variance of actual earnings.

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