Question

The probability of winning a specific lottery game is 0.01 or 1%.

A person pays $2 pays to play. A person who wins gets $99.00 back.
If a person plays the lottery one time, compute the expected payout.

Answer 1

The expected payout can be calculated as:

(expected payout) = (probability of winning) * (amount won) - (probability of losing) * (amount lost)

where

(probability of winning) = 0.01

(amount won) = $99.00

(probability of losing) = 0.99

(amount lost) = $2.00

Plugging in the values:

(expected payout) = (0.01) * ($99.00) - (0.99) * ($2.00)

(expected payout) = $0.97

Therefore, the expected payout is $0.97.