Suppose you buy 1 ticket for $1 out of a lottery of 1,000 tickets where the prize for the one winning ticket is to be $500. What is your expected value?
A) $- \$ 1.00$
B) $- \$ 0.40$
C) $\$ 0.00$
D) $- \$ 0.50$

Question

Suppose you buy 1 ticket for $1 out of a lottery of 1,000 tickets where the prize for the one winning ticket is to be $500. What is your expected value? 
A) $- \$ 1.00$
B) $- \$ 0.40$
C) $\$ 0.00$
D) $- \$ 0.50$

Quizplus · Accepted Answer

The expected value is calculated as: (Probability of winning) * (Prize) + (Probability of losing) * (Loss). The probability of winning is 1/1000, so the expected value is (1/1000) * $500 + (999/1000) * (-$1) = $0.50 - $0.999 = -$0.50.

Suppose You Buy 1 Ticket for $1 Out of a Lottery