Average value of the possible payoffs of an investment decision, taking into account the likelihood of each payoff. An investor should buy a stock when its market price is significantly lower than its expected value; the greater this difference, higher the returns. Similarly, a firm should buy back its stock when it is trading below the expected value and so transfer wealth from the short-term stockholders to the long-term stockholders. Expected value is the best prediction of a variable's value, and is computed by multiplying each outcome by the probability of its occurrence and then averaging them. Mathematically it is described as the probability-weighted average values of all possible outcomes, and is a measure of central tendency of a random variable. also called mathematical expectation.
Related information about expected value:
- Expected value - Wikipedia, the free encyclopedia
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- Expectation Value -- from Wolfram MathWorld
Papoulis, A. "Expected Value; Dispersion; Moments." §5-4 in Probability, Random Variables, and Stochastic Processes, 2nd ed. New York: McGraw-Hill, pp.
- Expected Value - YouTube
May 5, 2009 ... In this video, I show the formula of expected value, and compute the expected value of a game. The final answer represents the net transaction ...