Find the Expected Value of the Random Variable

question 66

Multiple Choice

Find the expected value of the random variable. Round to the nearest cent unless stated otherwise.
-Suppose you buy 1 ticket for $1 out of a lottery of 1,000 tickets where the prize for the one winning ticket is to be $500. What is your expected value?

• A)-$1.00
• B)-$0.40
• C)-$0.50
• D)$0.00

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Definitions:

Cost of Debt

The effective rate that a company pays on its current debt, often calculated by taking the average interest rate it pays on all of its debt instruments.

WACC

Weighted Average Cost of Capital, a measure used to estimate the average rate of return a company is expected to pay its securities holders.

Cost of Common Stock

The return required by equity investors given the risk of the investment in a company's common stock, often used as a component in calculating the cost of capital.

Marginal Shareholder

An investor perceived to be influential in determining a stock's price by their decisions to buy or sell at the margin.