Question

A lottery sells 1000 tickets at $1 apiece. There is one winner who receives $100, and 5 second place winners who receive $50 each. What is the expected value of a ticket? In your final answer, include the necessary calculations.

Answer 1

Chance of winning $100 = 1/1000 
chance of winning $50 = 5/1000 = 1/200 
cost of ticket = -1 
E[x] = 100* 1/1000 + 50* 1/200 -1 
= 0.1 + 0.25 - 1 = -0.65 

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