Target 100% Marks & Career in

Finance With Crore Plus Salary

It's time to fly.Going
Beyond Expectations 1
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

QUESTIONS OR
SOLUTIONS
WHICH MIGHT
BE MISSING
FROM BOOK/
NEWLY
INCORPORATED
QUESTIONS
ONLY FOR LEARN TO EARN BATCH STUDENTS
72 LECTURE / 92 LECTURE / 111 LECTURE /112 LECTURE

1ST EDITION 2ND EDITION 3RD EDITION 4TH EDITION

Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 2
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

PORTFOLIO MANAGEMENT

PORTFOLIO CONSISTING OF PURCHASING, SELLING & BORROWING - POINT NO, (III) IS RECTIFIED

QUESTION NO.28A(Exam Question)(8 Marks) Mr. X owns a portfolio with the following characteristics:
Security A Security B Risk free Security
Factor 1 sensitivity (Beta) 0.80 1.50 0
Factor 2 sensitivity (Beta) 0.60 1.20 0
Expected Return 15% 20% 10%
It is assumed that security returns are generated by a two factor model.
(i)If Mr. X has `1,00,000 to invest and sells ` 50,000 of security B & purchases ` 1,50,000 of security A, what is the
sensitivity(Beta) of Mr. X's portfolio to the two factors?
(ii)Invest 3,00,000 in Security A by using 1,00,000 of own money, 1,00,000 borrowing at Risk Free Rate, 1,00,000
by selling Security B. What is the sensitivity of the portfolio to the factors? OR
If Mr. X borrows ` 1,00,000 at the risk free rate and invests the amount he borrows along with the original amount
of ` 1,00,000 in security A and B in the same proportion as described in part (i), what is the sensitivity of the
portfolio to the two factors ?
(iii)What is the expected return premium of factor 2?
Solution:
(i) Sensitivity of Mr. X to the two factors are as follows :
Factor 1 = 1.50 x 0.80 + (-0.50 x 1.50) = 0.45 ;Factor 2 = 1.50 x 0.60 + (-0.50 x 1.20) = 0.30
1,50 ,000 50 ,000
Calculation Of Weights : WA   1.5; WB   .50
1,00 ,000 1,00,000
(ii) Sensitivity of Mr. X to the two factors are as follows :
Factor 1 = 3.0 x 0.80 + (-1 x 1.50) + (- 1 x 0) = 0.90 ; Factor 2 = 3.0 x 0.60 + (-1 x 1.20) + (-1 x 0) = 0.60
Calculation Of Weights :Security A : Rs. 300000 / Rs. 100000 = 3 ;Security B :-Rs. 100000 / Rs. 100000 = -1 ;
Risk free asset : -Rs. 100000 / Rs. 100000 = -1
[Additional Analysis: For taking weights in this case students must read the question clearly. It has been written
that "Invest the amount he borrows along with the original amount of Rs. 1,00,000 in security A and B in the same
proportion as described in part (i). By same proportion it means 1,00,000 in each case. That is we will invest Rs.
3,00,000 in Security A. Out of this Rs. 3,00,000, 1,00,000 will come from Risk Free Borrowing, Rs.1,00,000 will
come from Shorting Security B and Rs.1,00,000 from Mr. X itself.
(iii) This question can be solved in two manner:
One By Using Arbitrage Pricing Theory:
Return = Risk Free Rate + Beta x Risk Premium Of Each Factor
Security A : 15 = 10 + .80 x Risk Premium Factor 1 + .60 x Risk Premium Factor 2
Security B : 20 = 10 +1.50 x Risk Premium Factor 1 + 1.20 x Risk Premium Factor 2
By solving we get Risk Premium Factor 2 = 0 and also Risk Premium Factor 1 = 8.33
Accordingly, the expected risk premium for the factor 2 shall be Zero and whatever be the risk the same shall
be on account of factor 1.
One By Using This Equation : Risk Premium = Return - Risk Free Rate
Security A = 15% - 10% = 5%
Security B = 20% - 10% = 10%
Note: In exam students are required to give both the solution.

QUESTION NO.28B (8 Marks) Mr. Kapoor owns a portfolio with the following characteristics:
SecurityX Security Y Risk Free Security
Factor 1 sensitivity 0.75 1.50 0
Factor 2 sensitivity 0.60 1.10 0
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 3
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

Expected Return 15% 20% 10%

It is assumed that security returns are generated by a two factor model.
(i)If Mr. Kapoor has ` 1,00,000 to invest and sells short ` 50,000 of security Y and purchases ` 1,50,000 of security
X, what is the sensitivity of Mr. Kapoor’s portfolio to the two factors ? (ii)If Mr. Kapoor borrows ` 1,00,000 at the
risk free rate and invests the amount he borrows along with the original amount of ` 1,00,000 in security X and Y
in the same proportion as described in part (i), what is the sensitivity of the portfolio to the two factors ? (iii)What
is the expected return premium of factor 2?
Solution:
(i)Mr. Kapoor’s position in the two securities is +1.50 in security X and -0.5 in security Y. Hence the portfolio
sensitivities to the two factors :-
Factor 1 sensitivity = 1.50 x 0.75 + (-0.50 x 1.50) = 0.375; Factor 2 sensitivity = 1.50 x 0.60 + (-0.50 x 1.10) = 0.35
(ii)Mr. Kapoor’s current position:
Security X: `3,00,000/ `1,00,000 = 3; Security Y: ` 1,00,000 / ` 1,00,000 =-1; Rf asset: `100000 / `100000 = -1
Factor 1 sensitivity = 3.0 x 0.75 + (-1 x 1.50) + (- 1 x 0) = 0.75
Factor 2 sensitivity = 3.0 x 0.60 + (-1 x 1.10) + (-1 x 0) = 0.70
Hint: Proportion before was 1,50,000 : -50,000 i.e 1.5 : -.5
Therefore In ` 200000 proportion will be 2,00,000 x 1.5/2,00,000 x -.50 i.e 3,00,000 : -1,00,000
(iii) This question can be solved in two manner:
One By Using Arbitrage Pricing Theory:
Return = Risk Free Rate + Beta x Risk Premium Of Each Factor
Security A : 15 = 10 + .75 x Risk Premium Factor 1 + .60 x Risk Premium Factor 2
Security B : 20 = 10 + 1.5 x Risk Premium Factor 1 + 1.10 x Risk Premium Factor 2
By solving we get Risk Premium Factor 2 = 0 and also Risk Premium Factor 1 = 6.67
Accordingly, the expected risk premium for the factor 2 shall be Zero and whatever be the risk the same shall
be on account of factor 1.
One By Using This Equation : Risk Premium = Return - Risk Free Rate
Security X: Risk Premium = Total Return ( 15% ) - Risk Free Return (10% ) = 5%
Security Y: Risk Premium = Total Return (20%) - Risk Free Return (10% ) = 10%
Note: In exam students are required to give both the solution.

INTERNATIONAL FINANCIAL MANAGEMENT-POINT NO. 2 IS RECTIFIED

QUESTION NO.23A(Exam Question)(RTP) The total market value of the equity share of O.R.E. Company is `
60,00,000 & total value of the debt is ` 40,00,000. The treasurer estimate that the beta of the Equity is currently
1.5 & that the expected risk premium on the market is 10%. The industry bill rate is 8%. Required:
(i)What is the beta of the Company’s exiting portfolio of assets or Calculate Assets Beta?
(ii)Estimate the Company’s Cost of capital and the discount rate for the company’s present business.
Solution:
(i)Firm Beta or Beta of Company's existing Portfolio of Assets :
 E   D   60   60 
B A  BE    BD   = 1.5    0 
60  40   60  40  = .9

 D  E  D  E 
(ii)Estimation of Company's Cost of Capital :
Alternative- 1
Estimation of Company's Cost of Capital : = Risk Free Return + BetaOverall (Rm – Rf) = 8% + .90 x 10% = 17%
In case of expansion plan, 17% can be used as Discount Rate. Therefore Discount Rate = 17 %
Alternative- 2
Ke = Risk Free Return + Beta Equity (Rm – Rf) = 8% + 1.5 x 10% = 23% ; Kd = 8%
60,00,000 40,00,000
Ko = 23 × + 8× = 17%
60,00,000 + 40,00,000 60,00,000 + 40,00,000
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 4
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya JainWith Sunrise,You Rise

In case of expansion of the company’s present business, the same rate of return i.e.17.00% will be used. However,
in case of diversification into new business the risk profile of new business is likely to be different.Therefore,different
discount factor has to be worked out for such business.

Note: Both solution should be given in exam

QUESTION NO.51A NEW RULES AND RECTIFIED QUESTION AND SOLUTION

FOREIGN EXCHANGE-CANCELLATION AFTER DUE DATE [ IMPORTER] -
NEW RULE:
On Contract Cancellation:As per FEDAI Rule 6 a forward contract which remains overdue without any
instructions from the customers on or before due date shall stand automatically cancelled within 3 working
days after the maturity date. Though customer is liable to pay the exchange difference arising there from
but not entitled for the profit resulting from this cancellation.
Interest on Outlay of Funds: This interest shall be calculated for the period from the due date of maturity of
the contract and the actual date of cancellation of the contract or 3 working days whichever is later.

Blue color marked stands amended

QUESTION NO.51A An importer booked a forward contract with his bank on 10th April for USD 2,00,000
due on 10th June @ ` 64.4000. The bank covered its position in the market at ` 64.2800.
The exchange rates for dollar in the interbank market on 10th June and 13th June were:
10th June 13th June
Spot USD 1= ` 63.8000/ 8200 ` 63.6800/ 7200
Forward Rates:
June or June end ` 63.9200/ 9500 ` 63.8000/ 8500
July `64.0500/ 0900 ` 63.9300/ 9900
August ` 64.3000/ 3500 ` 64.1800/ 2500
September ` 64.6000/ 6600 ` 64.4800/ 5600
Exchange Margin 0.10% and interest on outlay of funds @ 12%. The importer requested on 14th June for
extension of contract with due date on 10th August.Rates rounded to 4 decimal in multiples of 0.0025.Take
360 days.
On 10th June, Bank Swaps by selling spot and buying one month forward.
Calculate: (i)Cancellation rate (ii)Amount payable on $ 2,00,000 (iii)Swap loss (iv)Interest on outlay of funds,
if any (v)New contract rate (vi)Total Cost
Solution:
(i)Cancellation Rate: The forward sale contract shall be cancelled at Spot TT Purchase for $ prevailing on
the date of cancellation as follows:
$/ Rs. Market Buying Rate Rs.63.6800
Less: Exchange Margin @ 0.10% Rs. 0.0636
Rs. 63.6163
Rounded off to Rs. 63.6175
(ii)Amount payable on $ 2,00,000
Bank sells $2,00,000 @ Rs. 64.4000 Rs. 1,28,80,000
Bank buys $2,00,000 @ Rs. 63.6163 Rs. 1,27,23,260
Amount payable by customer Rs. 1,56,740__
(iii)Swap Loss
On 10th June the bank does a swap sale of $ at market buying rate of Rs. 63.8300 and forward purchase for
June at market selling rate of Rs. 63.9500.
Bank buys at Rs. 63.9500
Bank sells at Rs. 63.8000
Amount payable by customer Rs. 0.1500
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 5
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

Swap Loss for $ 2,00,000 in Rs. = Rs. 30,000

(iv)Interest on Outlay of Funds
On 10thApril, the bank receives delivery under cover contract at Rs. 64.2800 and sell spot at Rs. 63.8000.
Bank buys at Rs. 64.2800
Bank sells at Rs. 63.8000
Amount payable by customer Rs. 0.4800
Outlay for $ 2,00,000 in Rs. 96,000
Interest on Rs. 96,000 x 12% x 3 days / 360 Rs. 96
(v)New Contract Rate
The contract will be extended at current rate
$/ Rs. Market forward selling Rate for August 64.2500
Add: Exchange Margin @ 0.10% 0.0643_
64.3143
Rounded off to Rs. 64.3150
(vi)Total Cost
Cancellation Charges Rs. 1,56,740.00
Swap Loss Rs. 30,000.00
Interest Rs. 96_______
1,86,836.00__

QUESTION NO.51B(8 Marks) Y has to remit USD $1,00,000 for his son’s education on 4th April 2018. Accordingly,
he has booked a forward contract with his bank on 4th January @ 63.8775. The Bank has covered its position in
the market @ ` 63.7575.
The exchange rates for USD $ in the interbank market on 4th April and 7th April were:
4th April 7th April
JulySpot USD 1= 63.2775/63.2975 63.1575/63.1975
Spot/April 63.3975/63.4275 63.2775/63.3275
May 63.5275/63.5675 63.4075/63.7650
June 63.7775/63.8250 63.6575/63.7275
July 64.0700/64.1325 63.9575/64.0675
Exchange margin of 0.10 percent and interest outlay of funds @ 12 percent are applicable. The remitter, due to
rescheduling of the semester, has requested on 7th April 2018 for extension of contract with due date on 14th
June 2018. Rates must be rounded to 4 decimal place in multiples of 0.0025. Calculate: (i)Cancellation Rate; (ii)
Amount Payable on $100,000; (iii)Swap loss; (iv)Interest on outlay of funds, (v)New Contract Rate; and (vi)Total
Cost
Solution:
(i)Cancellation Rate: The forward sale contract shall be cancelled at Spot TT Purchase for $ prevailing on the
date of cancellation as follows:
$/ ` Market Buying Rate ` 63.1575
Less: Exchange Margin @ 0.10% ` 0.0632
` 63.0943
Rounded off to ` 63.0950
(ii)Amount payable on $ 1,00,000
Bank sells $1,00,000 @ ` 63.8775 ` 63,87,750
Bank buys $1,00,000 @ ` 63.0950 ` 63,09,500
Amount payable by customer ` 78,250
(iii)Swap Loss: On 4th April, the bank does a swap sale of $ at market buying rate of ` 63.2775 and forward
purchase for April at market selling rate of ` 63.4275.
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 6
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

Bank buys at ` 63.4275

Bank sells at ` 63.2775
Amount payable by customer ` 0.1500
Swap Loss for $ 1,00,000 in ` = ` 15,000
(iv)Interest on Outlay of Funds: On 4th April, the bank receives delivery under cover contract at ` 63.7575 and
sell spot at ` 63.2775.
Bank buys at 63.7575
Bank sells at 63.2775
Amount payable by customer 0.4800
Outlay for $ 1,00,000 in ` 48,000
Interest on ` 48,000 @ 12% for 3 days ` 48
(v)New Contract Rate
The contract will be extended at current rate ` 63.7275
$/ ` Market forward selling Rate for June ` 0.0637
Add: Exchange Margin @ 0.10% ` 63.7912
Rounded off to ` 63.7900
(vi)Total Cost
Cancellation Charges 78,250.00
Swap Loss 15,000.00
Interest ` 48.00
93,298

NOTE: Q.65 IS RECTIFIED..HOWVER IN LATEST BATCH IT IS ALREADY RECTIFIED.

QUESTION NO.65(8 Marks) On 10th July, an importer entered into a forward contract with bank for US $ 50,000
due on 10th September at an exchange rate of `66.8400. The bank covered its position in the interbank market at
` 66.6800.How the bank would react if the customer requests on 14th September: (i)to cancel the contract?
(ii)to execute the contract? (iii)to extend the contract with due date to fall on 10th November?
The exchange rates for US$ in the interbank market were as below:
10th September 13th September
Spot US$1 = 66.1500/1700 65.9600/9900
Forward Rates
Spot/September 66.2800/3200 66.1200/1800
Spot/October 66.4100/4300 66.2500/3300
Spot/November 66.5600/6100 66.4000/4900
Exchange margin was 0.1% on buying and selling. Interest on outlay of funds was 12% p. a.
You are required to show the calculations to: (i)cancel the Contract, (ii)execute the Contract, and (iii)extend
the Contract as above. Rates rounded to 4 decimal in multiples of 0.0025
Solution:
(I)CANCEL THE CONTRACT
The FEADI Rule of Automatic Cancellation shall be applied and customer shall pay the charges consisted of
following: (a)Exchange Difference (b)Swap Loss (c)Interest on Outlay Funds
(a)Exchange Difference
Amount payable on $ 50,000
Bank sells $50,000 @ ` 66.8400 ` 33,42,000
Bank buys $50,000 @ ` 65.8950 ` 32,94,750
Amount payable by customer ` 47,250__
Working Notes:
Cancellation Rate: The forward sale contract shall be cancelled at Spot TT Purchase for $ prevailing on the date
of cancellation as follows:
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 7
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

$/ ` Market Buying Rate ` 65.9600

Less: Exchange Margin @ 0.10% ` 0.0660
` 65.8940 Rounded off to ` 65.8950
th
(b)Swap Loss :On 10 September the bank does a swap sale of $ at market buying rate of ` 66.1500 and forward
purchase for September at market selling rate of ` 66.3200.
Bank buys at ` 66.3200
Bank sells at ` 66.1500
Amount payable by customer ` 0.1700
Swap Loss for $ 50,000 in ` = ` 8,500
(c)Interest on Outlay of Funds
On 10th September, the bank receives delivery under cover contract at ` 66.6800 and sell spot at ` 66.1500.
Bank buys at 66.6800
Bank sells at 66.1500
Amount payable by customer 0.5300
Outlay for $ 50,000 in ` 26,500
Interest on ` 26,500 x 12% x 3 days / 365 days ` 26.14
Total Cost
Cancellation Charges ` 47,250.00
Swap Loss ` 8,500.00
Interest ` 26.14 ___
Charges for Cancellation of Contract ` 55,776.14
(II) CHARGES FOR EXECUTION OF CONTRACT
Charges for Cancellation of Contract ` 55,837.00
th
Spot Selling US$ 50,000 on 13 September at
` 65.9900 + 0.0660 (Exchange Margin)
= ` 66.0560 rounded to ` 66.0550 ` 33,02,750.00
` 33,58,587.00
(iii) CHARGES FOR EXTENSION OF CONTRACT
Charges for Cancellation of Contract 55837
New Forward Rate ` 66.5575
Working Note: New Contract Rate
The contract will be extended at current rate
$/ ` Market forward selling Rate for November ` 66.4900
Add: Exchange Margin @ 0.10% ` 0.0665_
` 66.5565
Rounded off to ` 66.5575

NOTE: FUTURES DERIVATIVES ..SOLUTION OF THIS QUESTION IS SIMPLIFIED..HOWEVER BOOK SOLUTION IS

ALSO 100% CORRECT
QUESTION NO. 4E The NSE-50 Index futures are traded with rupee value being ` 100* per index point. On
15th September, the index closed at 1195, and December futures (last trading day December 15) were
trading at 1225. The historical dividend yield on the index has been 3% per annum and the borrowing rate
was 9.5% per annum.
(i)Determine whether on September 15, the December futures were underpriced or overpriced?
(ii)What arbitrage transaction is possible to gain out this mispricing?
(iii)Calculate the gains and losses if the index on 15th December closes at (a)1260 (b)1175.
Assume 365 days in a year for your calculations.
*Hint: Here it means it is a lot size
Solution:
91
(i)Fair Future price of the December Future = 100[1195 + 1195(0.095 - 0.03) 365] = 1,21,437
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 8
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

Since the current market price of December-15 is ` 1,22,500 (` 100 x 1225) it is overpriced.
Note: 91 Days Calculation : Count Days Between Date From 15th September to 15th December
(ii) Actual Future Price = 1,22,500 > Fair Future Price = 1,21,437
Since the actual future is overpriced, the arbitrage is possible i.e. sell the future contract and borrow to
buy the stock.
(iii)Action Taken As On September 15
Transaction As On Today :
Buy (`1195 x 100 shares) = ` 1,19,500 worth of Stocks and
Borrow ` 1,19,500 @ 9.50% for 91 days
Sell a Future Contract @ 1225
Note: Assume Current Cash Market Price of NSE-50 Index is ` 1,19,500
As On Expiry :
(a)If on December 15, the Index closes at 1260
Cash Market
Buy 119500 + 119500 + 9.50/100 +91/365 = -1,22,330.35
Sell : 1,26,000
 
Dividend Earned @ 3% 91 x 1,19,500 x 3%
365
+ 893.79_
Profit 4563.44
Future Market
Sell 122500
Buy 126000
Loss 3500
Overall :Gain due to Arbitrage + 1,063.44
(b) If on December 15, the Index closes at 1175
Cash Market
Buy 119500 + 119500 + 9.50/100 +91/365 = -1,22,330.35
Sell : 1,17,500
 
Dividend Earned @ 3% 91 x 1,19,500 x 3%
365
+ 893.79_
Loss - 3936.56
Future Market
Sell 122500
Buy 117500__
Loss +5,000.00
Overall :Gain due to Arbitrage +1063.44

NOTE: IN SOME BOOK ITS SOLUTION WAS PRINTED PROPERLY.VALUATION OF SECURITY - DIVIDEND
QUESTION NO.26A Following are details regarding three companies A Ltd., B Ltd. and C Ltd.:
Details A Ltd. B Ltd. C Ltd.
Rate of Return (r) 15% 5% 10%
Cost of Equity Capital (Ke) 10% 10% 10%
Earning Per Share (EPS) `8 `8 `8
Calculate the value or price of an equity share of each of these companies applying Walter’s formulae when (D/
P ratio) is (i)25 % (ii)50% and (iii)75%
Solution:
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 9
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

r
DPS + (EPS – DPS)
As per Walter's Model we have : Po = Ke
Ke
A Ltd :
.15 .15
2+ (8 – 2) 4+ (8 – 4)
(i) When D/P Ratio is 25%: Po = .10 = Rs. 110 ;(ii) When D/P Ratio is 50%: Po = .10 = Rs. 100
.10 .10
.15
6+ (8 – 6)
(iii) When D/P Ratio is 75%: Po = .10 = Rs. 90
.10
B Ltd :
.05 .05
2+ (8 – 2) 4+ (8 – 4)
(i) When D/P Ratio is 25% Po = .10 = Rs. 50 ;(ii) When D/P Ratio is 50% Po = .10 = Rs. 60
.10 .10
.05
6+ (8 – 6)
(iii) When D/P Ratio is 75% Po = .10 = Rs. 70
.10
C Ltd :
.10 .10
2+ (8 – 2) 4+ (8 – 4)
(i) When D/P Ratio is 25% Po= .10 = Rs. 80 ;(ii) When D/P Ratio is 50% Po = .10 = Rs. 80
.10 .10
.10
6+ (8 – 6)
(iii) When D/P Ratio is 75% Po= .10 = Rs. 80
.10

RISK MANAGEMENT

QUESTION NO.12 ABC Ltd. is considering a project X, which is normally distributed and has mean return of Rs. 2
crore with Standard Deviation of Rs. 1.60 crore.
In case ABC Ltd. loses on any project more than Rs. 1.00 crore there will be financial difficulties. Determine the
probability the company will be in financial difficulty.
Given: Standard Normal Distribution Table (Z-Score) providing area between Mean and Z score
Z Score Area
1.85 0.4678
1.86 0.4686
1.87 0.4693
1.88 0.4699
1.89 0.4706
Solution:
For calculating probability of financial difficulty, we shall calculate the area under Normal Curve corresponding to
the Z Score obtained from the following equation (how many SD is away from Mean Value of financial difficulty):

x    1.00 crore  2.00 crore

Z= = = -1.875 say 1.875
 1.60 crore
Target 100% Marks & Career in
Finance With Crore Plus Salary
It's time to fly.Going
Beyond Expectations 10
INDA'S NO.1 SFM CLASS

सफलता की गारं टी AAditya Jain

With Sunrise,You Rise

Corresponding area from Z Score Table by using interpolation shall be found as follows:
Z Score Area under Normal Curve
1.87 0.4693
1.88 0.4699
0.01 0.0006
0.0006
The corresponding value of 0.005 Z score = 0.005 x = 0.0003
0.01
Thus the Value of 1.875 shall be = 0.4693 + 0.0003 = 0.4696
Thus the probability the company shall be in financial difficulty is 50% - 46.96% = 3.04%
Additional Analysis:Why 50% is used ? Because area from mean to left tail is 50% ; Remember Total Area is
100%.Why 46.96% is deducted from 50% ? This will be understood from the following graph.We need shaded
region area because the word in the question is like this:"In case ABC Ltd. loses on any project more than Rs.
1.00 crore there will be financial difficulties"

50%
46.96%