The expected monetary value method, Mathematics

The expected monetary value method

The expected pay off as profit associated with a described combination of act and event is acquired by multiplying the pay off for that act and event combination by the probability of occurrence of the described event. The expected monetary value or EMV of an act is the sum of all expected conditional profits associated along with that act

Illustration

A manager has a choice among

i.        A risky contract promising of shs 7 million along with probability 0.6 and shs 4 million along with probability 0.4 and

ii.      A diversified portfolio consisting of two contracts along with independent outcomes each promising Shs 3.5 million along with probability 0.6 and shs 2 million along with probability 0.4

Could you arrive at the decision by using EMV method?

Solution

The conditional payoff table for the problem may be constructed as given below:

(Shillings in millions)

Event Ei

Probability (Ei)

Conditional pay offs decision

Expected pay off  decision

 

(i)

Contract (ii)

Portfolio(iii)

Contract (i) x (ii)

Portfolio (i) x (iii)

Ei

0.6

7

3.5

4.2

2.1

E2

0.4

4

2

1.6

0.8

 

 

 

EMV

5.8

2.9

 

By using the EMV method the manager must go in for the risky contract that will yield him a higher expected monetary value of shs 5.8 million

Posted Date: 2/19/2013 2:45:49 AM | Location : United States







Related Discussions:- The expected monetary value method, Assignment Help, Ask Question on The expected monetary value method, Get Answer, Expert's Help, The expected monetary value method Discussions

Write discussion on The expected monetary value method
Your posts are moderated
Related Questions
jenna asked 100 of her schoolmates if they have had their first kiss and 43 of them said yes

Ask question Minimum 100 words accepted# 1000-101

approximate value is the precise or the accurate value which is measured  to the actual value.., approximation is how close the measured value is to the actual value , for example

a data set has a mean of 3, a median of4, and a mode of 5, which number must be in the data set 3,4,or5


#Mai iss 3 years younger than twice the age of her brother . If b represents the age of Mai''s brother .which expression below represents Mai''s age 2-3b 3-2b 2b-3 3b-2 2-3b 3-2b q

Draw a graph which has slope of a line with rise of five and run of two is positive.

Q. lim x tends to 0 (5 tanx sinx upon x square) here ( ) this bracket indicates greatest integer function Ans: You can calculate the limit of this function using basic concept of

Explain Comparing Fractions with example? If fractions are not equivalent, how do you figure out which one is larger? Comparing fractions involves finding the least common

Q)  In a lottery ,a person chooses six different natural numbers at random 1to 20,and if there six numbers match with the six numbers already fixed by the lottery committee ,he win