Question

Two teams, a and b, are about to play a game. previous records show that a has an 80% chance of winning, while b has a 20% of winning. spectators can either choose to buy regular tickets or special tickets. a spectator with a special ticket will receive a refund of $2 if team a wins and a refund of $5 if team b wins. how much extra, minimally, should the special ticket cost to cover the expected value of the refunds offered?

Answer 1

The special ticket cost to cover the expected value of the refunds would be $2.60

How to solve for the minimal extra cost.

Probability of A winning = 80%

Probability of B winning = 20%

We have to solve for the rebate of the bet.

80% = 0.8, 20% = 0.2

0.8 x 2 = 1.6

0.2 x 5 = 1

The extra minimal cost of the special ticket would be calculated as: 1 + 1.6

= $2.6

Therefore the answer to the question is $2.6

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