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

Operation research, discuss the sequencing decision problem for n jobs on t...

discuss the sequencing decision problem for n jobs on two and three machines

Examining a related problem, how to explain this strategy? how to do this s...

how to explain this strategy? how to do this strategy in solving a problem? can you give some example on how to solve this kind of strategy.

Which general famously stated ''i shall return'', Which general famously st...

Which general famously stated 'I shall return'? A. Bull Halsey B. George Patton C. Douglas MacArthur D. Omar Bradley

Define degrees and radians, Q. Define Degrees and Radians? Ans. Ju...

Q. Define Degrees and Radians? Ans. Just as your height can be measured in meters or feet and your weight can be measured in pounds or kilograms, angles can be measured in

Complex number, a ,b,c are complex numbers such that a/1-b=b/1-c=c-1-a=k.fi...

a ,b,c are complex numbers such that a/1-b=b/1-c=c-1-a=k.find the value of k

Describe subtracting negative fractions, Describe Subtracting Negative Frac...

Describe Subtracting Negative Fractions? Subtracting two fractions, whether one is positive and one is negative, or whether they are both negative, is almost the same process a

Solving equations by completing the square method, I need help for Solving ...

I need help for Solving Equations by Completing the Square Method, can anybody help me out for this?

Find the value of p and q for which the system of equations, Find the value...

Find the value of p and q for which the system of equations represent coincident lines 2x +3y = 7, (p+q+1)x +(p+2q+2)y = 4(p+q)+1 Ans: a 1  = 2, b 1 = 3, c 1 = 7 a 2  =

Find the original average of boys and girls in the class, When 6 boys were ...

When 6 boys were admitted & 6 girls left the percentage of boys increased from 60% to 75%. Find the original no. of boys and girls in the class. Ans: Let the no. of Boys be x

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