A friend of yours owes you $10,and he wants to flip a coin for double or nothing.If the coin lands heads,he will pay you $20.If the coin lands tails up,he will pay you nothing.As the coin is in midair,what is your expected value of this wager?
A)$0
B)$10
C)$20
D)$30

Question

Quizplus · Accepted Answer

The expected value can be calculated as:
(Probability of heads * payoff for heads) + (Probability of tails * payoff for tails)
(0.5 * $20) + (0.5 * $0) = $10
Therefore, the expected value of the wager is $10. As the initial debt owed is $10, it is best to take the double or nothing option as it results in an expected value equal to the initial debt. So, the best choice is to take the wager.

A Friend of Yours Owes You $10,and He Wants to Flip