Question

You are participating in a raffle in which there will be 2000 tickets sold. Each ticket costs 5 dollars. There is 1 first prize, a $100 gift certificate. 2 second prize $50 gift certificates. And 5 third prizes of $25. Use this information to answer the following questions. Show your work.

a. What is the expected value of a single raffle ticket?

b. According to the mathematics, should you participate in the raffle?

c. If you purchased 20 tickets, how much money would you expect to win or lose?

Answer 1

a) The expected value of the raffle ticket is computed here as:
= -Cost of ticket + Sum product of probability of win and the winning amount

= -5 + (1/2000)*100 + (2/2000)*50 + (5/2000)*25 = -$4.8375

Therefore the expected value of a single raffle ticket here is -$4.8375

b) According to mathematics as the expected value for each ticket here is very low negative value, therefore there is an expected loss here. Therefore we should not participate in the raffle.

c) For 20 tickets bought the total money expected to win or lose is computed here as:
= -$4.8375*20

= -$96.75

Therefore 96.75 dollars are expected to be lost here.