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

What is the probability that the product xy less than 9, A number x is ...

A number x is selected from the numbers 1,2,3 and then a second number y is randomly selected  from  the  numbers  1,4,9. What  is  the  probability that  the product xy of the two

Find fourier series, Question: Find Fourier series for the periodic fun...

Question: Find Fourier series for the periodic function of period 2 π,defined by      f(x) = x 4 ,  - π ≤ x ≤ π

Find solution manual, i need solution manual of "calculus and analytic geom...

i need solution manual of "calculus and analytic geometry thomas 6th edition book "

Reflection matrix, how do i solve reflection matrix just looking at the num...

how do i solve reflection matrix just looking at the numbers in a matrix

The blood pressure over two heart beats, At rest, the human heart beats onc...

At rest, the human heart beats once every second. At the strongest part of the beat, a person's blood pressure peaks at 120mmHg. At the most relaxed part of the beat, a person's bl

Projectile, what is the greatest projection range down an inclined plane? h...

what is the greatest projection range down an inclined plane? how we will calculate that?

Speed and distance, Two trains were traveling in opposite directions, movin...

Two trains were traveling in opposite directions, moving away from one another. One train was moving at 5 miles per hour. The other train was moving at 6 miles per hour. They were

Common graphs, Common Graphs : In this section we introduce common graph o...

Common Graphs : In this section we introduce common graph of many of the basic functions. They all are given below as a form of example Example   Graph y = - 2/5 x + 3 .

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