MAT 142 Problem set

Unit: Probability

Topic: Expected Value

Directions: Solve the following problems. Please show your work, and explain your reasoning.

1. A group holds a raffle to raise money. They sell 100 raffle tickets for $5 each. There is one

grand prize worth $100, three second place prizes worth $25 each and 5 3rd place prizes worth

$10 each. Find the expected value associated with the purchase of one ticket. (Remember to

subtract the cost of playing from your winnings)

1. I want to open a bakery and I am considering locations at two different shopping centers. Use

expected value to determine which location I should use.

Location 1: According to my consultant, if the bakery is successful, I can anticipate an annual

profit of $300,000. If its not successful, I can anticipate an annual loss of $100,000. The

probability of success at this location is 0.5.

Location 2: According to my consultant, if the bakery is successful, I can anticipate an annual

profit of $200,000. If its not successful, I can anticipate an annual loss of $60,000. The

probability of success at this location is 0.75.