Question 445837: Please help. I cannot figure this out and the examples in my text book does not help at all. Thank you in advance.
Ten thousand raffle tickets are sold for $5 each. Four prizes will be awarded: one for $5000, one for $2500, and two for $1000. Assume that the probability that any given ticket is selected for the $5000 prize is 1:10000 the probability that any given ticket is selected for the $2500 prize is 1:10000 and the probability that any given ticket is selected for a $1000 prize is 2:10000.
a) Determine his expected value.
b) Determine the fair price of a ticket.
Please show work.
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! Ten thousand raffle tickets are sold for $5 each. Four prizes will be awarded: one for $5000, one for $2500, and two for $1000. Assume that the probability that any given ticket is selected for the $5000 prize is 1:10000 the probability that any given ticket is selected for the $2500 prize is 1:10000 and the probability that any given ticket is selected for a $1000 prize is 2:10000.
a) Determine his expected value.
E(x) = [4995 + 2495 + 2*2(995)+ 9996(-5)]/10000 = $5.40
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b) Determine the fair price of a ticket.
If each tick cost $10.40 the game would be "fair".
That means the players expected gain would be zero
and his expected loss would be zero.
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Cheers,
Stan H.
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