Week 7

.docx
School
University Canada West **We aren't endorsed by this school
Course
BUSI 650
Subject
Finance
Date
Mar 24, 2023
Pages
1
Uploaded by CommodoreFieldEmu41 on coursehero.com
There is a financial concept known as the expected value. An investment's future value is determined by its expected return in finance. Calculating the EV of possible scenarios is possible by determining their probabilities. A multivariate model and a scenario analysis are typical applications of this concept. The concept of expected return is directly related to it. Any parameter that can be measured, such as cost, price, duration, or the number of units, can be used to calculate the expected value. There are some advantages to this method, as listed below: Provides investors and managers with information to help them make investment decisions. Indicates whether an investment will underperform by highlighting red flags. It simplifies decision-making by combining multiple outcomes into a single result. Despite the ease of calculation, anyone with a basic understanding of mathematics can calculate the expected value. Calculate the expected value by considering every possible outcome. As an example of a real-life scenario, the projects' NPV (Net Present Value) will likely be analyzed compared to their EV (Expected Value). There are, however, NPV calculations that take into account the EV of different projects as well. If I wanted to compute a probability, I would Divide the total number of possible outcomes by the number of ways the event can occur after determining its probability.
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