Question

1. To raise money, the Economics Club holds a raffle, where the winner will receive a free textbook worth $300. Each ticket is $5.00, and individuals are limited to one ticket each. Only 100 tickets will be sold. Assuming you buy a ticket:
   1. What are your possible monetary outcomes?

2. What are the probabilities of the possible outcomes? Summarize them as a probability distribution

3. What is the expected value of the probability distribution? Explain what this means.

4. If all 100 tickets are sold, what is the expected return to the Economics Club?

Answer 1

a> The possible monetary outcomes are $0 or $300. 0 if I lose the raffle and 300 if I win it,

b> Since there are 100 tickets, I bought one, there is a probability of 1/100 to win the lottery and 99/100 to lose it.

c> The expected value of the raffle is 99/100x0+1/100x300=$3

This means that if I play the game a large number of times, I will get a reward of $3 on an average.

d> The expected return to the Economics club will be $500-$300=$200

It is so because they are selling tickets worth $500 and the prize is worth $300.