Lottery Question

Question

Consider a lottery with 300 million tickets in which each ticket has a unique number. Each ticket sold for $1, and one ticket is drawn for a single prize of $75 million (and no other prizes). The expected value of a single ticket is

a. $4.

 

b. $.25.

 

c. -$0.75.

Answer 1

Expected value = Prize * (Probability of winning prize)

 

= ($75 million) * ( 1 / (300 million) ) 

 

= $75 / 300 = $.25