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

Integers satisfy the inequality, How many integers satisfy the inequality |...

How many integers satisfy the inequality |10(x+1)/x^2+2x+3|=1? Solution) first thing thats not an inequality, and second thing its very easy if thats the question. the LHS = |10/

expected value, Describe the distribution of sample means shapefor samples...

Describe the distribution of sample means shapefor samples of n=36 selected from a population with a mean of μ=100 and a standard deviation of o=12.  , expected value, and standard

Calculate the cost make use of trigonometric functions, In this task you ar...

In this task you are required to make use of trigonometric functions, research and use the Monte Carlo method of integration to determine areas under curves and perform calculation

Laplace transforms, In this section we will be searching how to utilize Lap...

In this section we will be searching how to utilize Laplace transforms to solve differential equations. There are various types of transforms out there into the world. Laplace tran

Area of a circle, There's a nice way to show why the expresion for the area...

There's a nice way to show why the expresion for the area of a circle of radius R is: Pi * R 2 . It has an comman relationship with the experation for the circumference of a

Solving an equation using multiplication and division, Solving an equation ...

Solving an equation using Multiplication and Division       A variable is a symbol that represents a number. Usually we use the letters like n , t , or x for variables. For

Basic Mathematics, Distinguish between Mealy and Moore Machine? Construct a...

Distinguish between Mealy and Moore Machine? Construct a Mealy machine that can output EVEN or ODD According to the total no. of 1''''s encountered is even or odd.on..

Is this a sample statistic.., jenna asked 100 of her schoolmates if they ha...

jenna asked 100 of her schoolmates if they have had their first kiss and 43 of them said yes

Series, if abebe murepay a $100000interse free loan by making annuallypaym...

if abebe murepay a $100000interse free loan by making annuallypayment of 1st

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