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    Expected Value of Reader's Digest sweepstakes

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    Expected Value for a Magazine Sweepstakes Reader's Digests ran a sweepstakes in which prizes were listed with the chances of winning: $1,000,000 (1 chance in 90,000,000), $100,000 (1 chance in 110,000,000), $25,000 (1 chance in 110,000,000), $5,000 (1 chance in 36,667,000), and $2,500 (1 chance in 27,500,000).

    a. Assuming that there is no cost of entering the sweepstakes, find the expected value of the amount won for one entry.

    b. Find the expected value if the cost of entering this sweepstakes is the cost of a postage stamp. Is it worth entering the contest?

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    Solution Summary

    This solution calculates the expected of entering the Reader's Digest sweepstakes assuming a) entry is free and b) entry cost is the price of a postage stamp.