Question
Asked Oct 16, 2019

‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1.
What is the expected value of Lottery A?
A) $7200
B) $8000
C) $9000
D) $7900
E) None of the above

Figure 1:
Price/Gallon
The Market for Gasoline
$17
$16
$15
$14
$13
$12
$11
$10
$9
$8
$7
$6
$5
$4
$3
$2
$1
0
1
5
6
7
8
Gallons
en
O
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Figure 1: Price/Gallon The Market for Gasoline $17 $16 $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 0 1 5 6 7 8 Gallons en O

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check_circleExpert Solution
Step 1

To find the expected value of lottery A.

Step 2

It is given that lottery A pays:

$2,000 with probability 0.3

$8,000 with probability 0.4

$12,000 with probability 0.2

$18,000 with probability 0.1

Step 3

The expected value of the lottery can be calculated by multiplying the returns...

= (2,000)(0.3) + (8,000)(0.4)+ (12,000)(0.2) + (18,000) (0.1)
600 3,200 2,400+ 1,800
= 8,000
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= (2,000)(0.3) + (8,000)(0.4)+ (12,000)(0.2) + (18,000) (0.1) 600 3,200 2,400+ 1,800 = 8,000

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