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

How many pages are not advertisements, The first section of a newspaper has...

The first section of a newspaper has 16 pages. Advertisements take up (3)3/8 of the pages. How many pages are not advertisements? Subtract the number of pages of advertisements

Parametric equations and curves - polar coordinates, Parametric Equations a...

Parametric Equations and Curves Till to this point we have looked almost completely at functions in the form y = f (x) or x = h (y) and approximately all of the formulas that w

Real constant and difference equation, Derive for the filter from z=a and p...

Derive for the filter from z=a and poles at z=b andz=c, where a, b, c are the real constants the corresponding difference equation. For what values of parameters a, b, and c the fi

General approach of exponential functions, General approach of Exponential ...

General approach of Exponential Functions : Before getting to this function let's take a much more general approach to things. Let's begin with b = 0 , b ≠ 1. Then an exponential f

Can u please tell me how to solve, a triangle with side lengths in the rati...

a triangle with side lengths in the ratio 3:4:5 is inscribed in a circle

Quadratic equation, how to solve this? y = 7x - 12 y = x2 Solve the sy...

how to solve this? y = 7x - 12 y = x2 Solve the system using substitution.

Tangent, construction of tangent when center not known

construction of tangent when center not known

Multistage sampling, Multistage sampling Multistage sampling is similar...

Multistage sampling Multistage sampling is similar to stratified sampling except division is done on geographical/location basis, for illustration a country can be divided into

Comparison-types of word problems related to subtraction, Comparison - the...

Comparison - the difference between two groups or numbers, namely, how much one is greater than the other, how much more is in one group than in the other. (e.g., if Munna has

Find the greatest number of 6 digits exactly divisible by 24, Find the grea...

Find the greatest number of 6 digits exactly divisible by 24, 15 and 36. (Ans:999720) Ans: LCM of 24, 15, 36 LCM = 3 × 2 × 2 × 2 × 3 × 5 = 360 Now, the greatest six digit

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