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Expected Value
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)                  

The probability weighted value of a variable is the expected value of that variable.  If a firm's decision makers think, for example, that there is a 10% probability that next year's profits will be $100,000; a 55% probability that they will be $200,000; and a 35% probability that they will be $300,000, then the expected value of profits is:

E[profits]    =            0.10 x ($100,000) + 0.55 x ($200,000) + 0.35 x ($300,000)

=            $10,000 + $110,000 = $105,000

=            $225,000.

 
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