Question

You buy a lottery ticket to a lottery that costs $10 per ticket. there are only 100 tickets available to be sold in this lottery. in this lottery there are one $500 prize, two $100 prizes, and four $25 prizes. find your expected gain or loss.

Answer 1

You must look first for the probability of the 4 prizes which are $500, $100, $25, and no prize.
 P ($500 prize) = 1/100 or 0.01
 P ($100 prize) = 2/100 or 0.02
 P ($25 prize) = 4/100 or 0.04
 P (No prize) = 100/100 – 1+2+4/100 =93/100 .93

 

Expected gain or loss is computed by: (P(x)* n)

E= (500-10)*.01 + (100-10)*0.02 + (25-10)* 0.04 + (-10)*.93
= 4.90 + 1.80 + 0.6 – 9.3
E = -2

There is a loss of $2.