Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › When do you use expected values?
- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- June 3, 2017 at 11:17 pm #390033
I was attempting to read a question that I found in one of the other providers. I got frustrated. The answer stated that it “would be wrong to use expected value because the scenarios were mutually exclusive”. I don’t understand this statement at all. Because we use probabilities to quantify data. So it’s irrelevant if the events are exclusive. Using the same logic, you either have revenue of 10 or 5 and both are – mutually exclusive! Mike, could you please shed some light on this? Much obliged as always!
June 4, 2017 at 8:45 am #390120Firstly, Mike does not teach Paper P4 and never has done!!
Secondly, it would help if you were to say which question you were referring to. I am guessing that it was one where the outcomes depended on the result of an election.
This is a very old question (the examiner has changed twice since then), and he did say that you would not lose marks if you had calculated an expected value. However, he was making the perfectly valid point that there were just two separate outcomes and that it would be best to calculate therefore the two possible results. As always with expected values, the actual outcome would never actually equal the expected value and that is something you would always write whenever you used expected values.
However it is very unusual to ever be given probabilities in Paper P4, and therefore to ever be able to calculate expected values. I cannot actually remember it ever being relevant in any other questions 🙂
June 4, 2017 at 10:54 am #390146Sorry John, I must’ve listened to hundreds of your lectures (twice or more often), so I should’ve known better who teaches the subject :*(
Studying brings me to a dark place but your lectures keep the light lit!
And your answer makes perfect sense! It was the election question and your explanation makes much more sense than what I read.June 4, 2017 at 3:41 pm #390224You are very welcome 🙂
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