Question 187861This question is from textbook Survey of Mathematics w/ Applications expanded edition
: 1000 tickets for prizes are sold for $2 each. Seven prizes will be awarded – one for $400, one for $200, and five for $50. Steven purchases one of the tickets.
a) Find the expected value
b) Find the fair price of the ticket.
This question is from textbook Survey of Mathematics w/ Applications expanded edition
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! 1000 tickets for prizes are sold for $2 each. Seven prizes will be awarded – one for $400, one for $200, and five for $50. Steven purchases one of the tickets.
a) Find the expected value
Random variable values: -2, 400, 200, 50
Corresponding probabilities: 986/1000 , 7/1000 , 1/1000, 5/1000
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Expected value = (986*-2 + 7*400 + 1*200 + 5*50)/1000 = $1.27
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b) Find the fair price of the ticket.
(986x + 7*400 + 1*200 + 5*50)/1000 = 0
(986x + 7*400 + 1*200 + 5*50) = 0
986x = -3250
x = 3.2961
Round down to get: $3.30
Tickets shuld be sold for $3.30 ; Then the expected win/loss would
be zero.
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Cheers,
Stan H.
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