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
Here we look at only the rules without going into their proofs. They are: a 0. If a If a If a
how to use a micrometer
Describe Independent Events in maths? Events are independent if the outcome of one event does not affect the outcome of the second event. If A represents one independent event
Determine the minimum capacity C of a Capacitor given that: C =(ax/(x-a))+(xy/(y-b))+(yb/(b-y)) given that "a" and "b" are fixed values and "x" and "y" vary independently such th
Advantages and disadvantages of paasche indices
approximate the following problem as a mixed integer program. maximize z=e-x1+x1+(x2+1)2 subject to x12+x2 =0
A boy covered half of distance at 20km/hr and rest at 40kmlhr. calculate his average speed.
Consider a class of 55 students. The student names are placed in a hat and 3 names are randomly drawn without replacement. a) If the first person drawn was named the class presi
SA= Ph+2B L=36 ft W=10 ft H=20 ft P=92 ft B=360 ft
how do i compute an algebra number
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