Questions / Quant trading, Expected value & odds
A ticket with a rebate
A ticket pays 30 with probability 0.2 and 0 otherwise. It costs 5. On losing tickets only, you receive a 1-point rebate. What is expected net profit?
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Answer: 1.8 points (9/5)
- Expected payout is 6; the expected rebate is 0.8. Net value is 6 + 0.8 − 5 = 1.8.
Interview shortcut. Expected receipts minus price: 0.2 × 30 + 0.8 × 1 − 5.
In the app this has a follow-up where one thing about the setup changes. Try the follow-up.