Use the following information to answer Questions 7 and 8:
It is Jim’s birthday and he has thrown a party for his friends. Everyone except Henry has arrived. George states that the chances of Henry showing up on the party are
only 10%.
If Jim bets a dollar against George that Henry will show up, his expected return from
the bet would be:
A. $1
B. $9
C. $0
I think some more write-up will be there as like he will get $9 if he wins and he can only loose $1.
Jim loosing probability is 0.9
Jim winning probability 0.1
So expected return will be
Loss x probability+ profit x probability
=-1×0.90+9×0.10
=0
I hope this helps you!
Why have you considered profit amount on winning = $9? Should it not be $10*0.1-$1*0.9
Yes winning amount will be 9 i will edit the first line of my answer.
This type of question causes friction and this type of questions will not come in the exam you can skip it.
Here is how winning amount is calculated
Ex:1
=0.9(-1)+0.1(0.9/0.10)
=-0.9+0.9
=0
Ex:2
=0.8(-1)+0.2(0.8/0.2)
=-0.8+0.8
=0
I hope this helps you!