What is the expected monetary value?
The expected monetary value is a value based on the probability that factors in all possible cash results of the situation. The value is achieved by multiplying the percentage of each option that occurs by a cash loss or a profit associated with this result. At this point, all these values, positive and negative, are combined to achieve the expected monetary value. This calculation is a valuable tool for those who have the task of making a decision on several possible results because it is the most accurate estimate of a possible result. Because this is not the case, the calculation of the expected monetary value is a good way to get to the most informed money decision. It is a particularly valuable risk assessment tool due to the way it takes into account all possible scenarios in and through the decision. For example,
the company faces two possible alternatives. Choice and would give one of ten shots for $ 1,000 UD (USD), without financial rewardnine times out of ten times. $ 1,000 would be multiplied by 10 % of the chances of this result, which occurs a total of $ 100. Since the next nine possible results come without cash profit or loss, it would be $ 100 expected cash value of the choice a.
In selection B there is a 50 % chance of profit $ 2,000 and 50 % chance of losing $ 500. To calculate the expected value here, $ 2,000 would multiply by 0.50 to obtain a profit of $ 1,000, and the negative-$ 500 multiplied by 0.50 for a loss of $ 250. Adding $ 1,000 USD to a negative-$ 250 provides the expected cash value for selecting B 750 USD, making it more favorable to two options for this stall.
If the cost of selection is attached under specific circumstances, it must also be taken into account as well. In the above example, if there were $ 700, which was connected to selection B, then the expected cash value would drop to only $ 50, nowhich has been reduced under the expected selection yield A. In risk management, these calculations are often used in tandem with decision -making trees, which will lay all the options and expected values side by each other.