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Expected Earnings Equation:
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Expected Earnings (EE) is a statistical measure that calculates the weighted average of potential earnings across different scenarios or outcomes, where each outcome's probability is used as its weight.
The calculator uses the Expected Earnings equation:
Where:
Explanation: The equation multiplies each possible earnings amount by its corresponding probability and sums all these products to get the overall expected value.
Details: Expected Earnings is crucial for financial planning, investment analysis, risk assessment, and decision-making under uncertainty. It helps compare different opportunities with varying risk profiles.
Tips: Enter probabilities as decimals (e.g., 0.25, 0.50, 0.25) and corresponding earnings values. Ensure probabilities sum to 1 and both lists have the same number of elements separated by commas.
Q1: What If Probabilities Don't Sum To 1?
A: The calculator will still compute the result, but for accurate expected value calculations, probabilities should sum to 1 to represent all possible outcomes.
Q2: Can I Use Percentages Instead Of Decimals?
A: No, probabilities must be entered as decimals (e.g., 25% should be entered as 0.25). The calculator expects decimal values between 0 and 1.
Q3: What Are Typical Applications Of Expected Earnings?
A: Investment analysis, project evaluation, insurance pricing, gambling scenarios, and any situation involving uncertain financial outcomes.
Q4: How Does This Differ From Simple Average?
A: Simple average assumes equal probability for all outcomes, while Expected Earnings uses weighted probabilities that reflect the likelihood of each outcome.
Q5: Can Negative Earnings Be Included?
A: Yes, negative earnings values can represent losses or costs, allowing the calculation of net expected value including potential losses.