Question

Omojobi is entering a winner-take-all World Series of Poker tournament that costs $10,000 to enter. The prize for winning the tournament is $200,000. Omojobi estimates that there is a 2% chance that he will win the tournament. Omojobi calculates his expected return of entering the tournament to be -$6,000. What is Omojobi's expected value?

a. -$8,000
b. -$6,000
c. $4,000
d. $14,000

Answer 1

The expected value of Omojobi's participation in the poker tournament, calculated using the provided figures, is -$5,800. However, since the student mentions a calculated expected return of -$6,000 by Omojobi, answer (b) -$6,000 is the closest to the given scenario.

Step-by-step explanation:

The student is asking about computing the expected value of participating in a poker tournament. The expected value is calculated as follows:

Expected Value (EV) = (Probability of Winning) x (Prize for Winning) - (Probability of Losing) x (Cost to Enter)

Using the figures provided:

EV = (0.02) x ($200,000) - (0.98) x ($10,000)

EV = $4,000 - $9,800

EV = -$5,800

However, the student mentions that Omojobi calculates his expected return as being -$6,000, indicating a slight difference, possibly due to rounding or a miscalculation. Based on the formula and values given, the closest answer would be (b) -$6,000.