Expected Value

Question

It costs $10 to play a game. You have a 15% chance of winning. You collect $30 if you win. Otherwise you lose your $10. Find the expected value.

Answer 1

Chance of losing $10 = 100 - 15% = 85% = 0.85

Chance of winning $30 = 15% = 0.15

 

Expected val = -10*0.85 +(30 - 10)*0.15 = -8.5 + 3 = -5.5