3. A casino game offers a $5 prize if you win, with probability of 0.4 and...

Question

Question

Answer 1

Answer #1

Answer:

It costs X to play.

Hence:

There is 40% probability to win amount (net of cost to play) = $5 and

there is (1- 40%=) 60% probability that you lose amount = $x

Expected return per game = $0.50

Expected return = Probability of Win * Amount to Win - Probability of Loss * Amount to lose

=>

$0.50 = 0.4 * $5 - 0.6 * $x

=> $x = $1.50 / 0.6 = $2.50

Hence:

x = 2.50

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Answer 2

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