SOLUTION: Two teams, A and B, are about to play a game. Previous records show that A has an 80% chance of winning, while B has a 20% of winning. Spectators can either choose to buy regular t

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Question 1180090: Two teams, A and B, are about to play a game. Previous records show that A has an 80% chance of winning, while B has a 20% of winning. Spectators can either choose to buy regular tickets or special tickets. A spectator with a special ticket will receive a refund of $2 if team A wins and a refund of $5 if team B wins. How much extra, minimally, should the special ticket cost to cover the expected value of the refunds offered?
a. 16.00
b. $2.60
c. $26.00
d. $3.00
e. $10.00
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
i think it will be .8 * 2 + .2 * 5 = 1.6 + 1 = 2.6.
that would be selection b.

the idea is that 80% of the time A will win and 20% of the time B will win.

if the teams played 100 games, then team A would win 80 games and team B would win 20 games, assuming the probabilities held true.

to cover the cost of of rebating the bet, then 2 * 80 = 160 is returned when team A wins and 5 * 20 = 100 is returned when team B win. that's a total of 160 + 100 = 260 that's returned for the 100 games.
divide that by 100 to get an average of 2.60 returned for each game played.