The expected monetary value method, Mathematics

Assignment Help:

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


Related Discussions:- The expected monetary value method

Find a minimum cost spanning arborescence rooted, Find a minimum cost spann...

Find a minimum cost spanning arborescence rooted at r for the digraph shown below, using the final algorithm shown in class.  Please show your work, and also give a final diagram w

????????, ?????? ?????? ?? ???? ??????? ???????? ?????? 3.5 ?? ??? ???? ???...

?????? ?????? ?? ???? ??????? ???????? ?????? 3.5 ?? ??? ???? ???? ????? 50??/???? ??????20??/???? ???? ?? ?? ?????? ???????? ??? ??? ?? ??????? ??????? ? ?? ????? ????

Quick help for exam preparation, can you help me with entrance exam for uni...

can you help me with entrance exam for university ? i really need help so quick

Determine how many valid fortran identifiers, A valid identifier in the pro...

A valid identifier in the programming language FORTAN contains a string of one to six alphanumeric characters (the 36 characters A, B,...., Z, 0, 1,...9) starting with a letter. De

Determine the approximate raw act score, Using the same mean and standard d...

Using the same mean and standard deviation as mean m = 20.1 and a standard deviation s = 5.8. Joe was informed that he scored at the 68 th percentile on the ACT, what was Joe's ap

Negative and positives, in 1970 a record 1.5 of rain fell in one minute at ...

in 1970 a record 1.5 of rain fell in one minute at Basse Terre, guadaloupe in the caribbnean.at this rate, how much rain fell in 3 seconds or 0.05 of a minutes?

Natural numbers, To begin with we have counting numbers. These ...

To begin with we have counting numbers. These numbers are also known as natural numbers and are denoted by a symbol 'N'. These numbers are obtai

#rounding off, I am the least two digit number which round off to 100?

I am the least two digit number which round off to 100?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd