Expected Values

A company believes it has a 40% change of being successful in bidding a contract that yields a profit of $30,000. Assume it costs $5,000 in consultation fees to prepare the bid. What is the expected gain or loss for the company if it decides to bid on the contract?

decides to bid on the contract?

• Expected gain of $9,000

• Expected loss of $9,000

• Expected gain of $25,000

• Expected loss of $25,000

A student group sells 500 raffle tickets for $2 each. At the drawing the top prize will be a gift certificate for $100. Second prize will be a $50 gift card and there will be five 3rd prizes, each a $20 gift card. Do you expect to win or lose (on average)? How much?

• lose an average of $5.50

• lose an average of $1.50

• win an average of $2.00

• lose an average of $10.00

• $0.10

• -$0.10

• $0.50

• -$0.50

• -$2.50

• -$3.33

• $0

• $5

A quiz game has three questions. Each correct answer scores 5 points, and each wrong answer scores 0 points. If a player guesses all answers, assuming a 50% chance of getting each question right, what is the expected score?

• 7.5

• 10

• 12.5

• 15

You pick a card from a deck.  If you get a face card, you win $5.  If you get an ace, you win $30 plus an extra $60 for the ace of hearts.  For any other card you win nothing. Find the expected value you will win.

• $5.00

• $3.85

• $4.04

• $4.62

Given the probability model in the table below, what is the expected value of the random variable?
  X        50          20        5
P(X)     0.1         0.3      0.6

• 14

• 4.67

• 5

• 7.5

Suppose you buy a ticket for $6 out of a lottery of 1000 tickets where the prize for the one winning is to be $800. What are your expected winnings (on average)?

• $800 

• -$6.50

• -$6

• -$5.20

Is your expected value always going to be what happens in real life?

• yes

• no

A stockbroker estimates that at the end of the year, there is a 40% chance a stock will be worth $50, a 35% chance it will be worth $60 and a 25% chance it will be worth $70.
What expected value does this broker assign to this stock's end-of-the-year price?

• $58.50

• $60.00

• $62.50

• $65.00