It costs $100 to enter the following game of chance based on the outcome of a coin toss. If the coin comes up 'heads, you walk away with $195 (for a net gain of $95). However, if the coin comes up 'tails, you walk away with $30 (for a net loss of $70). What is the expected return on this gamble in percentage terms?

It costs $100 to enter the following game of chance based on the outcome of a coin toss. If the coin comes up 'heads, you walk away with $195 (for a net gain of $95). However, if the coin comes up 'tails, you walk away with $30 (for a net loss of $70). What is the expected return on this gamble in percentage terms?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200. Probability Payoff Net Profit 0.30 $600 $400 0.60 200 0 0.10 0 –200 a-1. What is the expected cash payoff? (Round your answer to the nearest whole dollar amount.) a-2. What is the expected rate of return? (Enter your answer as a percent rounded to the nearest whole number.) b-1. What is the variance of the expected returns? (In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number.) b-2. What is the standard deviation of the expected returns? (Enter your answer as a percent rounded to 2 decimal places.)
A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200. Probability 0.30 0.60 0.10 Payoff $400 300 0 Net Profit $200 100 -200 a-1. What is the expected cash payoff? Note: Round your answer to the nearest whole dollar amount. a-2. What is the expected rate of return? Note: Enter your answer as a percent rounded to the nearest whole number. b-1. What is the variance of the expected returns? Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number. b-2. What is the standard deviation of the expected returns? Note: Enter your answer as a percent rounded to 2 decimal places. a-1. Expected cash payoff a-2. Expected rate of return b-1. Variance b-2. Standard deviation $ 300 50 % %
A game of chance offers the following odds and payoffs. Each play of the game costs $200, so the net profit per play is the payoff less $200. Probability Payoff Net Profit 0.30 $400 $200 0.60 300 100 0.10 0 –200 1. What is the expected cash payoff? Note: Round your answer to the nearest whole dollar amount. 2. What is the expected rate of return? Note: Enter your answer as a percent rounded to the nearest whole number. 1.What is the variance of the expected returns? Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number. 2.hat is the standard deviation of the expected returns? Note: Enter your answer as a percent rounded to 2 decimal places.
Suppose you won the lottery and had two options: (1) receiving$0.5 million or (2) taking a gamble in which, at the flip of a coin, you receive $1 million if ahead comes up but receive zero if a tail comes up.a. What is the expected value of the gamble?b. Would you take the sure $0.5 million or the gamble?c. If you chose the sure $0.5 million, would that indicate that you are a risk averter or arisk seeker?d. Suppose the payoff was actually $0.5 million—that was the only choice. You nowface the choice of investing it in a U.S. Treasury bond that will return $537,500 at theend of a year or a common stock that has a 50–50 chance of being worthless or worth$1,150,000 at the end of the year. 1. The expected profit on the T-bond investment is $37,500. What is the expected dollarprofit on the stock investment?2. The expected rate of return on the T-bond investment is 7.5%. What is the expectedrate of return on the stock investment?3. Would you invest in the bond or the stock? Why?4. Exactly…
In a certain game, suppose there is no cost to playing the game, and a player has a probability 0.07 of winning a prize worth $1,787 ,and a probability of 0.33 of winning another prize What is the expected payment of playing the game? (please do not round your worth $70 final answer, and enter it in the box provided below as is).
Person 1’s utility function for money is U = (M)0.5 . Person 2’s utility function for money is U = (M)0.25 .There is a gamble that you have 50% to get 2000$ and 50% get nothing. (a)What are these two people’s certainty equivalence of this gamble? (b)What are these two people’s risk premium of this gamble? (c)What are these two people’s probability premium of this gamble? (d)According to the result of above questions, can you judge which person is more risk averse
Use the following payoff matrix for a one-shot game to answer the accompanying questions. Player 1 Strategy A B Player 2 Y 12, 12 6,-30 -30, 6 30, 30 a. Determine the Nash equilibrium outcomes that arise if the players make decisions independently, simultaneously, and without any communication. Instructions: In order to receive full credit, you must make a selection for each option. For correct answer(s), click the box once to place a check mark. For incorrect answer(s), click twice to empty the box. ?(-30, 6) ? (12, 12) ? (6.-30) ? (30, 30) Which of these outcomes would you consider most likely? O (30,30) O (-30, 6) O (12, 12) O (6.-30) b. Suppose player 1 is permitted to "communicate" by uttering one syllable before the players simultaneously and independently make their decisions. What should player 1 utter? OA OB What outcome do you think would occur as a result? O (12, 12) O (-30, 6) O (30,30) (6,-30) c. Suppose player 2 can choose its strategy before player 1, that player 1…
Suppose the nominal rate of return is 0.085 and the risk-free rate is 0.010. What is the risk premium? Instruction: Round to two decimal places. E.g., if your answer is 0.0106465 or 1.06465%, you should type ONLY the number .01, neither 0.0106465, 0.0106, nor 1.065. Otherwise, Blackboard will treat it as a wrong answer.
You purchase a call with a strike of K-22 at a premium of 1.73 and you purchase a put with a strike of K-22 at a premium of 2.13. At maturity, the underlying is worth 15.31. What is your profit (or loss)? {Enter your answer in dollars with 2 decimals, but do not use the "$". Enter a loss with a negative sign. For example, if the profit/loss is -123.45, enter-123.45 with the negative sign for your answer. }
Suppose we are interested in bidding on a piece of land and we know one other bidder is interested. The seller announced that the highest bid in excess of $9,800 will be accepted. Assume that the competitor's bid x is a random variable that is uniformly distributed between $9,800 and $14,700. Suppose you bid $12,000. What is the probability that your bid will be accepted (to 2 decimals)? Suppose you bid $14,000. What is the probability that your bid will be accepted (to 2 decimals)? 1 What amount should you bid to maximize the probability that you get the property (in dollars)? I Suppose that you know someone is willing to pay you $16,000 for the property. You are considering bidding the amount shown in part (c) but a friend suggests you bid $12,900. If your objective is to maximize the expected profit, what is your bid? Select What is the expected profit for this bid (in dollars)? Check My Work
Consider the toss of a (loaded) coin. In a "good" outcome, punter (bettor) will receive £1 in 12 months. In a "bad" outcome she will not receive anything. The fair market price of this bet is £0.45 and current prevailing risk-free interest rate is 5%. What is the implied probability of a "good" outcome? Assume continuous compounding. A) 0.4223 B 0.4731 0.5269 0.5594
a) Plot the payoff and profit of the following options based strategy: Buy 3 puts with strike 100, sell 4 puts with strike 110 and buy 1 put with strike 140. Explain all your calculations. b) If the price of the put with strike 100 is $8 and the price of the put with strike 140 is $16, what can you say about the price of the put with strike 110? Explain

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