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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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