In: Statistics and Probability
A card game at a casino costs $10 to play. One card is selected at random from a standard deck. If a heart is selected the player wins $19. If a spade is selected, the player wins $14. If a club or diamond is selected, the player wins nothing. What is the expected value of this game to the player? Round your answer to the nearest cent. Do not include the $ sign in your answer.
A homeowner purchases an insurance policy against fire for $140 on her house valued at $150,000. The insurance company estimates the probability the house will burn down is 0.0002. What is the expected value of the policy to the homeowner? Round your answer to the nearest cent.
Ans:
1)
probability of selecting a heart=13/52=0.25
probability of selecting a spade=13/52=0.25
probability of selecting a club or diamond=26/52=0.5
Expected value of the game=0.25*19+0.25*14+0.5*0-10=-1.75
(negative value indicate loss)
2)
expected value of the policy to the homeowner
=(150000-140)*0.0002-140*(1-0.0002)
=-110.00