A state lottery is conducted in which 10,000 tickets are sold for $1 each. Six winning tickets are randomly selected. One grand prize winner of $5000, one second prize winner of $2000, one third prize winner of $1,000 and three other winner of $500.
a) Construct a probability distribution, with the random variable X equivalent to the net return.
b) Compute the expected value of playing this game.
c) Would you play this game? Why or why not?
A)
$4999 $1999 $999 $499 -1
0.0001 0.001 0.0001 0.0003 0.9994
B) Expected Payoff -0.05
C) The player's contribution to the game is the answer: Would he participate or not. If the ticket price is $1 he might not care the loss, if the ticket price is $1000... he might care and not choose to participate in the game.
Why this math wiz type question is relevant to trading?
Answer: Coming soon.
a) Construct a probability distribution, with the random variable X equivalent to the net return.
b) Compute the expected value of playing this game.
c) Would you play this game? Why or why not?
A)
$4999 $1999 $999 $499 -1
0.0001 0.001 0.0001 0.0003 0.9994
B) Expected Payoff -0.05
C) The player's contribution to the game is the answer: Would he participate or not. If the ticket price is $1 he might not care the loss, if the ticket price is $1000... he might care and not choose to participate in the game.
Why this math wiz type question is relevant to trading?
Answer: Coming soon.