What Is an Expected Monetary Value?
Expected currency value, also known as risk exposure value and risk expected value, is a technique for quantitative risk analysis. The English name is ExpectedMonetaryValue, so it is usually expressed in EMV in calculation and use. Opportunity EMV is usually expressed as a positive value, while threat EMV is expressed as a negative value. EMV is based on the assumption of risk neutrality, and neither hedging nor taking risks. Therefore, when reviewing a project, the EMV of the project is often calculated.
Expected currency
Right!
- Expected currency value, also known as risk exposure value and risk expected value, is a technique for quantitative risk analysis. The English name is ExpectedMonetaryValue, so it is usually expressed in EMV in calculation and use. Opportunity EMV is usually expressed as a positive value, while threat EMV is expressed as a negative value. EMV is based on the assumption of risk neutrality, and neither hedging nor taking risks. Therefore, when reviewing a project, the EMV of the project is often calculated.
- Anticipated currency is often used in conjunction with decision trees. It is a multiplication of the monetary consequences and the probability of occurrence of possible risks in a particular situation. This project includes risk and cash considerations. Positive values represent opportunities and negative values represent risks. The value of each possible outcome is multiplied by the probability of occurrence and added together to calculate the project's EMV.
- example:
- If all goes well for Project A, the probability of making a profit of 200,000 yuan is 20%; under normal conditions, the probability of making a profit of 180,000 yuan is 35%; at all risks
- Under the circumstances that will happen, the probability of losing 200,000 yuan is 15%. Project
- EMV = 20x20% + 18x35% + (one 20x15%) = 3.3 (ten thousand yuan).
- If all goes well for Project B, the probability of making a profit of 200,000 yuan is 15%; under normal conditions, the probability of making a profit of 400,000 yuan is 50%; at all risks
- Under the circumstances that will happen, the probability of losing 300,000 yuan is 20%. Then the project's EMV = 20x15% + 40x50% + (one 30x20%) = 17 (ten thousand yuan)
- . Compared with the two EMV values, project B is more worthwhile because project B has a higher EMV value.