Page 223 - BA2 Integrated Workbook STUDENT 2018

Risk 2: Probability

If we assume that the past is a good indicator of the future, we can calculate the
probabilities of each of the four levels of daily sales.

Daily sales (units) (X) Probability (P)

10 5 ÷ 40 = 0.125
20 12 ÷ 40 = 0.30

30 15 ÷ 40 = 0.375
40 8 ÷ 40 = 0.20
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1.00

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Note: always check that the probabilities add up to one.

Expected value = (10 × 0.125) + (20 × 0.3) + (30 × 0.375) + (40 × 0.2) = 26.5

On average daily sales will be 26.5 units.

2.2 Payoff tables

Payoff tables (also known as expected value tables) can be useful in more complex
scenarios.

Illustrations and further practice

Try TYU 5

Go over illustration 4

Try TYU 7

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