1. What Is Expected Annual Income?

Expected Annual Income is a weighted average calculation that estimates the average income you can expect to receive over multiple scenarios, taking into account the probability of each scenario occurring.

2. How Does The Calculator Work?

The calculator uses the expected value formula:

Where:

• \( Probability_i \) — Probability of scenario i occurring (decimal between 0 and 1)
• \( Income_i \) — Income amount for scenario i (currency/year)
• \( \sum \) — Summation across all scenarios

Explanation: This formula calculates the weighted average income across different possible scenarios, providing a realistic expectation of annual earnings.

3. Importance Of Expected Income Calculation

Details: Calculating expected income is crucial for financial planning, budgeting, investment decisions, and risk assessment. It helps individuals and businesses make informed decisions based on probabilistic outcomes.

4. Using The Calculator

Tips: Enter probabilities as decimals (e.g., 0.25 for 25%), ensure all probabilities sum to exactly 1.0, and enter income values in your preferred currency. All income values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: Why must probabilities sum to 1.0?
A: Probabilities represent all possible outcomes, so they must collectively account for 100% of possible scenarios.

Q2: Can I use percentages instead of decimals?
A: The calculator requires decimal format. Convert percentages by dividing by 100 (e.g., 25% = 0.25).

Q3: What if I have more than three scenarios?
A: You can calculate manually by extending the formula: Expected Income = Σ(Probability × Income) for all scenarios.

Q4: How accurate is expected income for real-world predictions?
A: Accuracy depends on how well your probability estimates reflect actual likelihoods. It's a statistical estimate, not a guarantee.

Q5: Can this be used for business revenue forecasting?
A: Yes, this method is commonly used in business for revenue projections under different market conditions.