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A lottery has a $10 000 000 grand prize, a $500 000 second prize, and ten $50 000 third prizes. A ticket costs $5, and 4 000Example 3: Expected Value A hospital is having a fundraising lottery to raise money for cancer research. A ticket costs $10,

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Answer #1

(a) Expected value of each ticket

= $10,000,000 * (1/4,000,000) + $500,000*(1/4,000,000) + $50,000*(10/4,000,000) - $5

= -$2.25

(b) No, lottery tickets are not a good investment as it always results in an expected loss

(c) The grand prize can be reduced and that amount can be utilised in giving more prizes of smaller amount which gives a higher probability of winning to the buyer.

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