Question

9) suppose that the market has a 70% chance of being favorable and a 30% chance of being unfavorable. a favorable market will yield a profit of $300,000, while an unfavorable market will yield a profit of $20,000. what is the expected monetary value (emv) in this situation? (show your work)

Answer 1

The expected monetary value (EMV) for this market situation is calculated using the given probabilities and profits, and it amounts to $216,000.

Step-by-step explanation:

To calculate the expected monetary value (EMV) in this situation, we can use the formula EMV = (probability of favorable market × profit in favorable market) + (probability of unfavorable market × profit in unfavorable market).

Using the probabilities and profits given:

• Probability of a favorable market (Pf) = 70% or 0.7
• Profit in a favorable market (Profitf) = $300,000
• Probability of an unfavorable market (Pu) = 30% or 0.3
• Profit in an unfavorable market (Profitu) = $20,000

Now, let's calculate:

EMV = (0.7 × $300,000) + (0.3 × $20,000)

EMV = ($210,000) + ($6,000)

EMV = $216,000

Therefore, the expected monetary value is $216,000 in this market situation.