You can buy a lottery ticket for 1 The current jackpot is 10

You can buy a lottery ticket for $1. The current jackpot is $10 million, and the odds of winning are 1 in 16 million. What is the expected dollar payout if you buy 1 ticket? What is your expected percentage return?

Solution

Probability of Winning = 1/ 16000000 and Jackpot Payout = $ 10000000

Expected Dollar Payout = 10000000/16000000 = $ 0.625

Expected Return = Expected Dollar Payout - Lottery Ticket Price = 0.625 - 1 = - $ 0.375

Expected % Return = (-0.375 / 1) x 100 = - 37.5 %