ACCA Performance Management (F5) Certification Practice Exam

What mathematical expression represents Expected Value (EV)?

1. sum of all outcomes

2. sum of px

3. average of probabilities

4. p - maximum outcome

The correct answer is: sum of px

The Expected Value (EV) is a key concept in probability and statistics that represents the average outcome of a random variable when the experiment is conducted numerous times. It effectively summarizes the potential outcomes weighted by their probabilities. The correct mathematical expression, which is often denoted as EV, is the sum of the products of each outcome and its respective probability. This is represented as the formula: EV = Σ (x * p), where x represents the outcome and p represents the probability of that outcome occurring. This means you multiply each outcome by the probability of that outcome and sum these products to arrive at the expected value. This approach captures both the values of the outcomes and their likelihood, providing a comprehensive measure of the expected outcome over time. It is applicable in various scenarios such as in decision-making, game theory, and risk assessment, among others. Thus, the expression "sum of px" accurately conveys this computation, making it the representation of Expected Value.