Question

Raffle Tickets One thousand raffle tickets are sold for $1 each. One prize of $800 is to be awarded.

a) Rena Condos purchases one ticket. Determine her expected value.
b) Determine the fair price of a ticket.

Answer 1

One thousand raffle tickets are sold for $1 each. One prize of $800 is to be awarded.
a) Rena Condos purchases one ticket. Find her expected value.
The random variable has the values +800 and -1
The corresponding probabilities are 1/1000 and 999/1000
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Multiply each value by its probability and add the results to get:
E(x) = 800(1/1000) + (-1)(999/1000)
E(x) = 0.8 - 0.999
E(x) = -0.199 or a loss of 19.9 cents
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b) Determine the fair price of a ticket.
Let the price be "x".
The random variable values are 800 and -x
The probabilities are 1/1000 and 999/1000
Multiplying and add you get:
800(1/1000)+x(999/1000) = 0
800 + 999x = 0
x = -(800/999) dollars
x = -0.80 dollars
The price to play should be 80 cents.

Answer 2

Thank you so very much. This stuff blows my mind.

Answer 3

yeah, it is a little tricky :P
glad I could help