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
Q. How to Collecting and interpreting data? Ans. Collecting and interpreting data is the most important job of a statistician. There are many types of studies and differe

how do you make a tnslation

what is solid geometry and uses of solid geometry

What is Pythagorean Triples? A set of three numbers a, b, and c that can satisfy the equation A 2 +b 2 = c 2 , is called a Pythagorean triple. The following is a list of

The Shape of a Graph, Part I : In the earlier section we saw how to employ the derivative to finds out the absolute minimum & maximum values of a function.  Though, there is many

I need the coordinates for this equation Y=1/2-4

Five cards - the ten, jack, queen, king and ace, are well shuffled with their face downwards. One card is then picked up at random. (i)  What is the probability that the card is

the first question should be done using the website given (www.desmos.com/calculator )and another good example to explain using the graph ( https://www.desmos.com/calculator/ydimzr

Compute the linear convolution of the discrete-time signal x(n) ={3, 2, 2,1} and the impulse response function of a filter h(n) = {2, 1, 3} using the DFT and the IDFT.

how do you slove 4u-5=2u-13