Problema Solution
One thousand raffle tickets are sold for $2.00 each. One grand prize of $500 and two consolation prizes of $100 each will be awarded. Jeremy purchases one ticket. Find his expected value.
Answer provided by our tutors
EXPECTED EARNINGS, then it is computed as follows:
His chance of winning the grand prize is 1/1000. His earning then would be 500 - 2 = $498.
His chance of winning $100 is 2/1000, and his earning then would be 100 - 2 = $98.
His chance of losing (or not winning any) is 997/1000. He stands to lose -$2 in that case.
His expected earnings is then . Thus he stands to lose $1.30 on the average.
CONCPET=
500+200=700
1/1000 * 700 = 700/1000 = $0.70 expected value of the ticket.
Since he paid more than $0.70 for the ticket he has a bad beT