Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
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
Proof of: if f(x) > g(x) for a x b then a ∫ b f(x) dx > g(x). Because we get f(x) ≥ g(x) then we knows that f(x) - g(x) ≥ 0 on a ≤ x ≤ b and therefore by Prop
what is break even point and how can it helps managers to make decisions?
how do you make a tnslation
Awhat is the meaning and application sk question #Minimum 100 words accepted#
The sum of two integers is 36, and the difference is 6. What is the smaller of the two numbers? Let x = the ?rst integer and let y = the second integer. The equation for the su
give me the anwsers ..
In the adjoining figure a dart is thrown at the dart board and lands in the interior of the circle. What is the probability that the dart will land in the shaded region. A
BUILD UPON THE CHILDS BACKGROUND : As you read in previous, each child is unique. Individual children vary in age, level of cognition, background, etc. What implications does thi
LAST COST METHOD
A group of children who lived near a lead smelter in El Paso, Texas, were identified and their blood levels of lead were measured. An exposed group of 46 children were identified w
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd