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

Absolute mean deviation-measures of central tendency, Illustration 1 I...

Illustration 1 In a described exam the scores for 10 students were given as: Student Mark (x) |x-x¯| A 60

Find out indegree, Question: Consider a digraph D on 5 nodes, named x0...

Question: Consider a digraph D on 5 nodes, named x0, x1,.., x4, such that its adjacency matrix contains 1's in all the elements above the diagonal A[0,0], A[1,1], A[2,2],.., e

Explain introduction to non-euclidean geometry, Explain Introduction to Non...

Explain Introduction to Non-Euclidean Geometry? Up to this point, the type of geometry we have been studying is known as Euclidean geometry. It is based on the studies of the a

What is a set, A set can define as a precise group of distinct objects. Wel...

A set can define as a precise group of distinct objects. Well-defined group means that there be a principle with the help of which it is probable to tell whether a given object rel

Solve 6 sin ( x/2)= 1 on [-20, Solve 6 sin ( x/2)= 1 on [-20,30] Soluti...

Solve 6 sin ( x/2)= 1 on [-20,30] Solution Let's first work out calculator of the way since that isn't where the difference comes into play. sin( x/2)= 1/6   ⇒x/2= sin

Calculate average speed of a train, Calculate average speed of a train: ...

Calculate average speed of a train: What is the average speed of a train which completes a 450-mile trip in 5 hours? Solution: Using Equation 15: V av = s/t V a

Formula to estimate distance around circle table, If Lisa wants to know the...

If Lisa wants to know the distance around her circular table, that has a diameter of 42 in, which formula will she use? The circumference or distance around a circle is π times

#Regular Expression, Find the Regular Grammar for the following Regular Exp...

Find the Regular Grammar for the following Regular Expression: a(a+b)*(ab*+ba*)b.

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