HOMEWORK

EXPECTED VALUE AND SAMPLING DISTRIBUTIONS

EXPECTED VALUES: E(X) = X_iP(X_i)

EXPLAIN ALL ANSWERS

PROBLEM 1 (8 points):

What is the expected value of a lottery ticket where there are only four chances in a million of winning the grand prize of $20 Million?

PROBLEM 2 (8 points):

You have been offered a chance to purchase a lottery ticket with a 10% chance of making $1,000; 20% chance of making $100; and 70% chance of making $0.The price of the ticket is $15.

Should you buy it or not? Why?

PROBLEM 3 (9 points):

Party Time Co. will run a promotional raffle that offers a chance to win either a lifetime discount on Spring Festival Merchandises (which results in a $500 savings) or a 3-year limited discount on any party-goods (which results in a $25 savings).

• Winning a lifetime discount has a 1-in-50 chance.
• Winning a 5-year limited discount has a 1-in-6 chance.

Is this promotion worth it if the tickets cost $15?