Answer:
The expected value is $0.1125
Step-by-step explanation:
The number of packages worth $0.70 in the grab bag = 20
The number of packages worth $0.60 in the grab bag = 15
The number of packages worth 30 cents in the grab bag = 5
The amount paid to pick one package = 50 cents
The number of packages in the bag, n = 20 + 15 + 5 = 40
The total value of the packages in the grab bag, 'V', is given as follows;
V = 20 × $0.70 + 15 × $0.60 + 5 × $0.30 = $24.5
The average value of the packages in the bag, A = V/n
∴ A = $24.5/40 = 0.6125
The expected value is the value of the investment, at a point in time, the expected value E(X) is found by finding the sum of the of the calculations of the possible outcomes as follows
Whereby a $0.70 package is picked up, we have;
E(X)₁ = ($0.70 - $0.50) × 20/40 = $0.10
Whereby a $0.60 package is selected, we have;
E(X)₂ = ($0.60 - $0.50) × 15/40 = $0.0375
Whereby a $0.30 package is selected, we have;
E(X)₃ = ($0.30 - $0.50) × 5/40 = $(0.025)
Therefore, the expected value, E(X), is found as follows;
E(X) = E(X)₁ + E(X)₂ + E(X)₃
E(X) = 0.1 + 0.0375 - 0.025 = $0.1125
The expected value, E(X) = $0.1125
