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Fundamentals of Financial Management, Third Edition by Vyuptakesh Sharan

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SOLVED NUMERICAL PROBLEMS
  1. A company is expecting the following scenario of returns the next year. Find out the expected return.
    Possible return % Likelihood Probability %
    14

    Normally likely

    30
    8

    Most likely

    50
    3

    Meagrely likely

    18
    −2

    Least likely

    2

    Solution

    Expected return = (0.14 × .30) + (0.08 ×.50) + (0.03 × 0.18) + (−0.02 × 0.02)

                        = 0.042 + 0.040 + 0.0054 + -0.0004 = 0.087 = 8.7%

     

  2. A company has the possible outcomes of cash flow given below:
    Probability % Cash flow Rs
    40
    2,00,000
    30
    5,00,000
    30
    3,00,000

    Find the expected return and the variation in terms of standard deviation.

    Solution

    Expected return = (0.40 × 2,00,000) + (0.30 × 5,00,000) + (0.30 × 3,00,000) ...

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