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In: Finance

Builtrite has calculated the average cash flow to be $16,000with a standard deviation of $2,500....

Builtrite has calculated the average cash flow to be $16,000 with a standard deviation of $2,500. What is the probability of a cash flow being between $18,500 and $19,750? (Assume a normal distribution.)

Solutions

Expert Solution

Probability for 19750:

Particulars Amount
Expected Value 19750.00
Mean Value 16000.00
SD 2500.00

Z = [ Expected Value - Mean Value ] / SD
= [ 19750 - 16000 ] / 2500
= [ 3750 ] / 2500
= 1.5

NT ( Z ) = NT (1.5 )
= 0.9332
I.e 93.32%

Probability for 18500 :

Particulars Amount
Expected Value 18500.00
Mean Value 16000.00
SD 2500.00

Z = [ Expected Value - Mean Value ] / SD
= [ 18500 - 16000 ] / 2500
= [ 2500 ] / 2500
= 1

NT ( Z ) = NT (1 )
= 0.8413
I.e 84.13%

Probability of Cash flow between 18500 and 19750 = 93.32% - 84.13%

= 9.19%

jeff jeffy answered 2 years ago
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