4. Decision Analysis
Expected Value — Quiz
Test your understanding of expected value with 5 practice questions.
Practice Questions
Question 1
What is the formula for calculating the expected value $\text{E}(X)$ of a discrete random variable $X$?
Question 2
A game involves rolling a fair six-sided die. If you roll a 6, you win $\$10. For any other number, you lose $\$1. What is the expected value of playing this game?
Question 3
In a lottery, there is a 1 in 100 chance of winning $\$500 and a 99 in 100 chance of winning $\$0. What is the expected value of a lottery ticket?
Question 4
A company is considering two investment projects. Project A has a 60\% chance of yielding a $\$10,000 profit and a 40\% chance of a $\$2,000 loss. Project B has an 80\% chance of yielding a $\$5,000 profit and a 20\% chance of a $\$1,000 loss. Which project has a higher expected value?
Question 5
You are offered a choice between two options: Option 1 gives you $\$20 with a probability of 0.4 and $\$5 with a probability of 0.6. Option 2 gives you $\$15 with a probability of 0.5 and $\$10 with a probability of 0.5. Which option should you choose based on expected value?