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

Matrix addition and subtraction, What is Matrix addition and subtraction? I...

What is Matrix addition and subtraction? Illustrate the procedure of Matrix addition and subtraction.

Round 468.235 to the nearest hundredth, Round 468.235 to the nearest hundre...

Round 468.235 to the nearest hundredth ? The hundredths place is the second digit to the right of the decimal point (3). To decide how to round, you must like as at the digit t

Prove asymptotic bounds for recursion relations, 1. (‡) Prove asymptotic b...

1. (‡) Prove asymptotic bounds for the following recursion relations. Tighter bounds will receive more marks. You may use the Master Theorem if it applies. 1. C(n) = 3C(n/2) + n

Linear programming Special purpose of algorithm, the conclusion about stepp...

the conclusion about stepping stone method in real life situation?

Experiments probabillity of compound events, what is the expiremental proba...

what is the expiremental probability that the next toss and spin will result in 3 and tail if 1-heads,53.2-heads,49.3-heads,54.1-tail,65.2-tails,71.3-tails,62

Write down two more reasons why division is difficult, Write down two more ...

Write down two more reasons why children consider 'division' difficult. Regarding the first reason given above, one of fie few division related experiences that the child perhaps d

Solve the second order differential equations, Solve the subsequent IVP ...

Solve the subsequent IVP Y'' - 9 y = 0, y(0) = 2, y'(0) = -1 Solution First, the two functions  y (t ) = e 3t  and  y(t ) = e -3t That is "nice enough" for us to

Trigonometry, Prove: 1/cos2A+sin2A/cos2A=sinA+cosA/cosA-sinA

Prove: 1/cos2A+sin2A/cos2A=sinA+cosA/cosA-sinA

Basic operations on fractions, A simple example of fraction would be ...

A simple example of fraction would be a rational number of the form p/q, where q ≠ 0. In fractions also we come across different types of them. The two fractions

Intergration, Functional and variations.Block III, Consider the functiona...

Functional and variations.Block III, Consider the functional S[y]=?_1^2 v(x^2+y'')dx , y(1)=0,y(2)=B Show that if ?=S[y+eg]-S[y], then to second order in e, ?=1/2 e?_1^2¦?g^'

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