Bill and Larry toss two coins. If both coins come up heads, Bill pays Larry $4. Larry pays Bill $1 otherwise. What is the expected value of this game for Bill? %

Question

Bill and Larry toss two coins. If both coins come up heads, Bill pays Larry $4. Larry pays Bill $1 otherwise.

What is the expected value of this game for Bill?

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Answer 1

Bill's table

outcome prob. amount

HH 1/4 -4

All others 3/4 +1

Expected value = mean value = (1/4 * -4) + (3/4 * 1) = -1/4 = 0.25

Bill should expect to loose $0.25 (25 cents)