Answer:
Thus, expected value of playing = $2.8 - $2 = $0.8
Explanation:
Cost of playing = $2
Expected return
10% chance to win $1 = $1 [tex]\times[/tex] 10% = $0.1
25% chance to win back $2 = $2 [tex]\times[/tex] 25% = $0.5
50% chance to win $5 = $5 [tex]\times[/tex] 50% = $2.5
15% chance to lose $2 (being cost) = $2 [tex]\times[/tex] 15% = ($0.3)
= $0.1 + $0.5 + $2.5 - $0.3 = $2.8
Now for this we have to pay fixed cost $2
Thus, expected value of playing = $2.8 - $2 = $0.8
