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TOPIC: EMV calculation question

EMV calculation question 2 years 10 months ago #4250

  • Ashwin Kini
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How is the following type of question calculated?
If a business has 50% chances to earn $5 million and 30% chances to lose $2.5 million
What is the EMV?

EMV calculation question 2 years 10 months ago #4251

  • Cornelius Fichtner
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Ashwin,

Allow me to ask a question in return... where is this from and what do they say the answer is?
Until Next Time,
Cornelius Fichtner, PMP, CSM
President, OSP International LLC

EMV calculation question 2 years 10 months ago #4252

  • Ashwin Kini
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Hi Cornelius,

I have found similar ones in few tests but unable to understand how the cost is calculated. The figures are updated so I wouldn't have the right answer.

The rough calculation goes as follows:-

EMV = (5 Million x 50%) + (-2.5 x 30%)
= (2.5) + (Not sure how the cost is calculated here)

EMV calculation question 2 years 3 months ago #4991

  • Suresh Lingam
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Hi,

The calculation is very simple.

Your Question :- If a business has 50% chances to earn $5 million and 30% chances to lose $2.5 million
What is the EMV?

Answer:-

EMV = (50/100 * 5 million) + (30/100 * - 2.5 million)
EMV = 2500000 + (-750000)
EMV = 1750000

If you see I have take -2.5 million is the second part of the formula, because its a loss

I hope this will clear your doubt.
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