Consider a lottery with three possible outcomes: $125 will be received with probability 0.2 $100
Question:
● $125 will be received with probability 0.2
● $100 will be received with probability 0.3
● $50 will be received with probability 0.5
a. What is the expected value of the lottery?
b. What is the variance of the outcomes?
c. What would a risk-neutral person pay to play the lottery?
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Step by Step Answer:
a The expected value EV of the lottery is equal to the sum of the return...View the full answer
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Pushpinder Singh
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