A certain sweepstakes ticket has four categories of prizes with the following probabilities of being won:
Prize
Probability
$100,000
1/500,000
$50,000
1/250,000
$20,000
1/200,000
$10,000
1/100,000
What is the expected value of buying these sweepstakes tickets?
Select one:
a. $.60
b. $5.00
c. $.50
d. $6.00
(1/500,000)(100000) + (1/250000)(50000) + (1/200000)(20000) + (1/100000)(10000)
= .60
so $0.60
To determine the expected value, you need to multiply the value of each prize by its probability of being won, and then sum up the results.
Let's calculate the expected value for each prize:
Expected value of $100,000 prize = $100,000 * (1/500,000) = $0.20
Expected value of $50,000 prize = $50,000 * (1/250,000) = $0.20
Expected value of $20,000 prize = $20,000 * (1/200,000) = $0.10
Expected value of $10,000 prize = $10,000 * (1/100,000) = $0.10
Now, we add up the expected values of each prize:
Expected value = $0.20 + $0.20 + $0.10 + $0.10
Expected value = $0.60
Therefore, the expected value of buying these sweepstakes tickets is $0.60.
The correct answer is a. $0.60.