Examples of expected value in the following topics:
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- In probability theory, the expected value of a random variable is the weighted average of all possible values.
- If you answered "it depends", you are ready to learn about expected value.
- Expected value is calculated by multiplying the probability that something will happen by the resulting outcome if it happens.
- But to understand expected value, you have to imagine playing a particular game hundreds of times.
- That is your expected return.
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- The discounted cash flow approach finds the value of an asset using its expected return and the present values of future cash flows.
- An asset is expected to return $1,000 each year for a period of 5 years.
- In the DCF approach, all future-expected positive and negative cash flows associated with the asset are discounted using the appropriate interest rate (such as the expected return found using CAPM).
- These present values are summed to give the net present value (NPV) of the asset.
- -- Use this equation to find the present value of a future terminal value.
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- The value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate.
- As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate.
- Therefore, the value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate.
- The bond price can be summarized as the sum of the present value of the par value repaid at maturity and the present value of coupon payments.
- Bond price is the present value of coupon payments and face value paid at maturity.
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- Market Value Added (MVA) is the difference between the current market value of a firm and the capital contributed by investors.
- If the MVA is positive, the firm has added value.
- where: MVA is market value added, V is the market value of the firm, including the value of the firm's equity and debt, and K is the capital invested in the firm.
- The firm's market value added, or MVA, is the discounted sum (present value) of all future expected economic value added: MVA = Present Value of a series of EVA values.
- MVA is the present value of a series of EVA values.
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- A no-growth company would be expected to return high dividends under traditional finance theory.
- At the other end of the spectrum, investors of a "no growth," or value stock will expect the firm to retain little cash for investment, and to distribute a comparatively greater proportion to investors as a dividend.
- No growth, high dividend stocks may appeal to value investors.
- Thus, high dividends and low reinvestment of retained earnings can signal an appealing value stock to an investor.
- Describe how a company should make a dividend decision when it expect no growth
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- Generally the cost is allocated, as a depreciation expense, among the periods in which the asset is expected to be used.
- Generally this involves four criteria: cost of the asset, expected salvage value (residual value of the asset), estimated useful life of the asset, and a method of apportioning the cost over such life.
- The salvage value (residual value or scrap value) is an estimate of the value of the asset at the time it will be sold or disposed of.
- This may be a more realistic reflection of an asset's actual expected benefit from the use of the asset: many assets are most useful when they are new.
- Under the units-of-production method, the useful life of the asset is expressed in terms of the total number of units expected to be produced.
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- Stocks that tend to experience larger swings have higher beta values and expose owners to more specific risk.
- When a company announces its earnings as higher or lower than expected, the stock may experience a sudden shift in value.
- A higher than expected profit may come from increased revenues or decreased expenses.
- That could in turn affect the expected returns of a competitor's stock, either positively or negatively, depending on how analysts forecast the effect.
- The announcement of higher than expected sales from Ford could affect its stock price significantly, and it could set into motion a chain of events.
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- Market value is often used interchangeably with open market value, fair value, or fair market value.
- In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance.
- In many cases, the carrying value of an asset and its market value will differ greatly.
- If the asset is valued on the balance at market value, then its book value is equal to the market value.
- Market value is the asset's worth if it were to be exchanged in the open market in an arm's length transaction; it can also be derived based on the asset's present value of the expected cash flows it will generate.
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- Calculate the market value of this T-bill.
- A bond has a face value of $2,000, an interest rate of 10%,and pays interest twice a year.
- A bond has a face value of $2,000, an interest rate of 10% and pays interest twice a year.
- If you expect the central bank to lower interest rates, define a good investment strategy.
- If a corporation expects to pay $1 dividend every year that grows 3% per year while the market interest rate is 4%, compute the market value of this stock.
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- If the person analyzing a company chooses or if the market value of a company's debt and equity is not available, the book value can be used.
- Since we are measuring expected cost of new capital, the calculation of weighted average cost of capital usually uses the market values of the various components rather than their book values.
- Market value also requires the element of "special value" to be disregarded.
- Book value refers to the value of an asset according to the account balance present on the balance sheet of a company.
- An asset's initial book value is its actual cash value or its acquisition cost.