Question

Consider a lottery with three possible outcomes: $125 will be received with probability 0.2. $110 will be received with probability 0.3. $30 will be received with probability 0.5. The expected value of the lottery is $73. (Round your answer to the nearest dollar.) The variance of the outcomes is $ (Round your answer to the nearest dollar)

Answer 1

1876

Explanation:

expected value = EV = 0.2 × $125 + 0.3 × $110 + 0.5 × $30

EV = $73 (the given EV is correct)

V = p1 × (O1 - EV)² + p2 × (O2 - EV)² + p3 × (O3 - EV)²

V = 0.2 × (125 - 73)² + 0.3 × (110 - 73)² + 0.5 × (30 - 73)²

V = 1876