Suppose you pay $3.00 to roll a fair die with the understanding that you will get back $5.00 for rolling a 1 or a 2, nothing otherwise. What is your expected value?

A) $- \$ 1.33$
B) $- \$ 3.00$
C) $\$ 5.00$
D) $\$ 3.00$

Question

Suppose you pay $3.00 to roll a fair die with the understanding that you will get back $5.00 for rolling a 1 or a 2, nothing otherwise. What is your expected value?

A) $- \$ 1.33$
B) $- \$ 3.00$
C) $\$ 5.00$
D) $\$ 3.00$

Quizplus · Accepted Answer

The expected value is calculated as follows: The probability of rolling a 1 or 2 is 1/3, and the payout is $5. The probability of rolling any other number is 2/3, and the payout is $0. The expected value is (1/3 * $5) + (2/3 * $0) - $3 = $1.67 - $3 = -$1.33.

Suppose You Pay $3 −$1.33- \$ 1.33−$1.33 B) −$3.00- \$ 3.00−$3.00 C) $5.00\$ 5.00$5.00

Suppose You Pay $3 $- \$ 1.33$ B) $- \$ 3.00$ C) $\$ 5.00$