One thousand tickets are sold at $2 each. One ticket will be randomly selected and the winner will receive a color television valued at $387. What is the expected value for a person that buys one ticket?
A)-$1.61
B)$1.61
C)$1.00
D)-$1.00

Question

Quizplus · Accepted Answer

The expected value is calculated by multiplying the value of each outcome by its probability and then summing these products. For the ticket buyer, there are two outcomes: winning the television or not winning anything. The probability of winning is 1/1000, with a value of $387 (the value of the television). The probability of not winning is 999/1000, with a value of -$2 (the cost of the ticket). The expected value (EV) is thus EV = (1/1000)*$387 + (999/1000)*(-$2) = $0.387 - $1.998 = -$1.61.

One Thousand Tickets Are Sold at $2 Each